Volatility has become the norm among cryptocurrencies, with prices fluctuating significantly over the last few months. More recently, a different form of volatility has emerged. A number of influential nations have been issuing vague and often contradictory statements regarding crypto regulation. Not surprisingly, these actions have caused confusion, and have sparked dramatic swings in valuations. Nevertheless, these confusing statements are also a clear indicator that official recognition and regulation are on the horizon. The world’s largest economies are beginning to understand the nature of cryptocurrency, and how it can transform traditional economic systems.
China has recently sent signals that indicate both support for, and against, the cryptocurrency revolution. Cryptocurrency is known to be growing in popularity among the Chinese populace. After initial hostility to Bitcoin, recent years have seen a more relaxed attitude toward crypto by the Chinese government. Although banks may not offer or trade crypto, individuals may own it. Also, a number of crypto ventures have been developed in China, including Neo and Qtum, which have surged in popularity.
It is thus surprising that Chinese financial regulators just announced a ban on ICOs. Although regulations have been rumored for months, few expected any anti-cryptocurrency moves. This ban is especially shocking given that Neo is similar to Ethereum in that it is a platform that enables the creation of tokens.
Russia has also made contradictory moves as of late. Like China, After initial hostility toward crypto, the government appeared to have changed its stance. Members of the Duma announced regulations would soon be issued, and Vladimir Putin’s positive comments on Ethereum all but promised that Russia would become a pro-crypto nation.
Conflicting positions have since emerged from Russia. Last week, after the Moscow Stock Exchange announced that it would soon offer crypto trading, Russia’s Deputy Finance Minister stated that such trading would be restricted to a select few. Since then, Russia’s Central Bank has taken a firm position against cryptocurrencies, claiming that they are risky and encourage illegal activity.
There are a number of scenarios that could explain the confusion of these conflicting positions. One simple, but realistic, explanation is that many Chinese and Russian officials do not understand cryptocurrency. To fully comprehend how crypto works, one must have a solid understanding of both technology and economics. Both of these nations have long histories of leadership incompetence in these areas.
It should also be noted that despite liberalization, both nations have traditionally had centrally planned economies, with very tight controls on currency and trade. Cryptocurrency promises tremendous benefits, but it will also force nations to relinquish many fundamental economic controls that autocratic governments hold dear. These contradictory positions could indicate conflict between pro and anti-crypto officials.
The contradictions over crypto legality and regulations can also be seen in other developed nations. Even as Bitcoin approaches its tenth year, few states have comprehensive crypto regulations in place. In fact, most have yet to even define crypto as having tangible value, despite a global market cap of more than one hundred billion dollars. Such lack of attention by financial authorities would be unheard of with any other asset. Simply put, governments of the world still do not know what to do with cryptocurrency.
One fact that is undeniable is that no anti-crypto regulation can prevent the growth of cryptocurrency and the implementation of distributed ledger technology. Even states with outright bans are unable to prevent citizens from trading and investing. Financial officials would be wise to acknowledge this reality, and work with crypto advocates rather than against them.
Thus, the most important takeaway from China and Russia’s behavior is the fact that cryptocurrency has become too big, and too revolutionary, to dismiss. Leaders are being forced to learn cryptocurrency fundamentals, and will have no choice to develop policies that promote their use and development. In other words, even a bad policy, such as China’s recent ban on ICOs, is still a recognition of the power and potential of blockchain technology. Better definition and regulation from other states is sure to follow.