2018 was clearly a step backward for the crypto-economy. We end the year with most top coins such as Bitcoin and Ether returning to their mid-2017 prices, a big disappointment for many who thought they would retire early, as Bitcoin would blast past $20,000. Didn’t happen. Perhaps you could say the winners were the ones that bought their Ferraris, Lambos, and London penthouses in the nick of time. The biggest losers were perhaps the companies that launched successful ICOs, and opportunistically did not convert the majority of their tokens to Fiat as soon as possible. Some who reportedly raised tens of millions of dollars are left with half a million in the bank. You can’t pay salaries with a devalued token…
But let’s discuss the reality of what has been really holding down crypto, and what might change in 2019 to make it more exciting again. For me, the price of crypto was really NOT what mattered, the fact was, the rising prices made people talk about the digital economy. Ideas of what our lives might be like were discussed actively. Crazy ideas were funded through ICOs which otherwise would never have seen the light of day through traditional VC funding. It was our 21st Century race to the Moon. Everything became possible. People, companies and even governments stopped being short-sighted and cyclical in their socio-economic thinking, and began to see the world more holistically. The reason is, crypto by its very DNA, is not just disruptive, but borderless. That meant ideas and solutions ceased to be China-focused, or US-focused. It became about everyone in the world, and that was a great shift in fundamental footing of everyone who engaged in the space.
But what has been the biggest hold up? Without a shred of doubt, regulation. Nothing else mattered! Exchanges getting hacked, people losing or being robbed for their cold storage vaults, did not cause more than blips in the ecosystem. It has been the looming risk, inconsistency and uncertainty around regulation that made those hacks and thefts have more lasting effects on the crypto-economy. Imagine it to be a weight on top of a sponge cake. You could normally cut out a chunk and it would still hold its form. But with the weight, the piece cut out, leaves a gap that is forced further down. Regulation has stifled growth in the space.
One of the most poignant statements I have heard off late was by Jo Ann Barefoot, a senior advisor to the Omidyar Group said during the Singapore Fintech Festival 2018, “The greatest disabler to innovation is if we get the regulation wrong”.Her point was being made with respect to fintechs and payments, but has an equal bearing on the crypto-regulation space. Today in the US, capital gains on your crypto portfolio follows the same principles as property gains! That is pure madness! The accounting and reporting structures that would need to be put in place to manage when you bought crypto; at what price; and when you liquidated; at what price; did you buy it as an individual or part of an investment portfolio? All these and many more such tedious bits of information would need to be taken into account to be sure you paid the right tax on the fraction of BTC that you used to buy a coffee… Madness.
So why is the American SEC in particular not taking a call on crypto regulations? Are they waiting to give their pals at Goldman and other big banks the chance to take favourable positions on the top coins, so they can package it into your grandma’s mutual fund? Are they forcing the price down so they can replace it with government-backed crypto currencies? Do they really care about ensuring that only accredited investors can buy into crypto-funds, and have the knowledge to invest wisely (Security Tokens anyone?)?
It is clear in my view, that until the American SEC puts forth a proper crypto framework, that the crypto-economy will not see the sky-high growth that existed just a year ago. And why the US, well, consider this… other big economies like Japan have been much freer with their crypto regulation, but that has still not allowed for the global economy to grow and stay vibrant. The US is at the end of the day, the economy that the world always looks to for economic guidance. Maybe crypto will not be regulated as a security at all, if the Token Taxonomy Actproposed earlier this week passes.
Everything stated above does not change one major difference in thinking between the different cohorts of believers in the crypto space – crypto-currencies of today are NOT well suited to replaced Fiat currencies (Dollars, Euros, Yen and so on). This is a simple truth that no matter how fervently people try to state the contrary, will not change. Facebook, WhatsApp (yes same company at the end of the day) and even Uber are reported to be considering their own crypto-currencies for their billions of global users to transact. While this may sound like a dominant move that would shift the market, the fact remains that unless crypto-assets themselves are universally regulated (or not at all) these kind of initiatives by companies will only land them into more hot water with more regulators and force them into more issues around the world.
Would I like to see crypto regulated? YES. I believe regulation to be a good thing. With a number of years now of crypto being in the forefront of the digital economy, regulators have enough data and knowledge that they can sensibly create a framework that allows the economy to grow as a part of the broader global economy while protecting the rights of individuals, and not as a fringe, geek-centric token.
2019 is going to be a watershed year for the space, so HODL on!