When Bitcoin reported its worst results ever in the first quarter of 2018 — a drop of $114 billion in market capitalization, a precipitous fall of 45 percent between Jan. 1 and March 30 alone — many in the cryptocurrency world pointed to looming regulatory policy on the hitherto-unrestrained market as at least a partial culprit.
They’re not wrong.
After capturing the imagination of a broad slate of investors — and capturing headlines around the world — on a run-up that saw a single Bitcoin jump from $1000 at the beginning of 2017 to peak at just over $19,000 by the end of that year, euphoria from its early investors has been met by concern from central banks all over the world.
Recent G20 Meeting about Cryptocurrency Regulations
At the recent G20 meeting in Buenos Aires, Argentina’s central bank governor, who was hosting the summit, outlined a summer deadline for members to have “specific recommendations on what to do” about cryptocurrency regulations. He called for proposals by July 1.
Those concerns were echoed by the International Monetary Fund, whose Managing Director Christine Lagarde highlighted cryptocurrency’s potential as a vehicle for money laundering and the financing of terrorism. In a March blog post, Lagarde called for policies that protect consumers in the same way as the traditional financial sector. Mark Carney, the governor the United Kingdom’s central bank, was more blunt: The “speculative mania” regarding crytpocurrencies, he said, means that “the time has come to hold the crypto-asset ecosystem to the same standards as the rest of the financial system.”
That all puts a short leash on the cryptocurrency market — and Bitcoin in particular, which, in its short life, cracked the S&P 500’s top 20 market valuations, if only briefly, late last year — which most believe to be a good thing. “I think regulated is going to be the norm,” said Cameron Chell, co-founder of Business Instincts Group, a venture creation firm. “But how the crypto community views regulated is not what it is today.”
Cameron Chell, who remains bullish on the sector, believes that reigning in some of the irrational exuberance that propelled Bitcoin in particular to unsustainable heights will be to its advantage as an asset, long term. “Regulation will still allow cryptocurrencies to provide a liquid market, it will still provide all the utility, but the key piece is that it will also provide a level of protection for the buyer and seller, which, ultimately, is legitimizing, I think.”
Chell is hardly alone.
While most regulators have become wary of crypto’s potential for wild swings, they also see its usefulness. Switzerland, in particular, is high on its potential as a national economic engine: Its Economics Minister Johann Schneider-Ammann told journalists in January he wants the country to become “crypto nation.” Even more bearish G20 nations like Italy favour moving forward. Its central bank leader told reporters after the G20 meeting in Buenos Aires that cryptocurrencies pose risks but should not be banned.
For Chell, it’s a normal evolution, complete with growing pains, for a market whose potential is yet to be realized. “It’s a new asset class,” he says. “We haven’t seen an asset class before where you’re actually using the equity portion of the asset as a currency and a utility as well. A new asset class needs a new set of regulations, for everyone’s protection. I think that’s perfectly reasonable.”