Last week our theme was “Security Tokens take center stage”
Our theme for this week is “Can Regulation drive the next Bull Market?“
Bitcoin has been in the longest bear market in its 10-year history. In 2013, the crypto market had 410-day bear market, when the Bitcoin price dropped from around $1,100 to nearly $200.
In 2017, cryptocurrencies experienced their greatest bull market ever. Bitcoin’s price surged from less than $1,000 to $20,000, while other major cryptocurrencies recorded 200x gains in the same 12-month period.
But in 2018 we saw a complete reversal, with bearish sentiment across the board and not just for Bitcoin. Investors in other cryptocurrencies, like Ethereum, and Ripple, also lost huge amounts. As a whole, the market lost 86% of its market cap, since its all-time high, causing many casualties and startups like ConsenSys, STEEM, Ethereum Classic, and NEM failing to achieve predicted returns.
The market was affected by regulatory news, mining and scaling difficulties. Investors that entered the market during the hype, recorded substantial losses in a short period of time.
While analysts and traders think the current bear market will continue throughout the first half of 2019, they expect the market to recover.
One piece of the news that makes me optimistic about the market’s recovery and for the future of Bitcoin and other cryptocurrencies is that Bitcoin is fully or partially legalized in 111 countries.
Recently, Coin Dance reported that Bitcoin was legal in 111 out of 251 countries and it was only illegal in the following ten countries: Afghanistan, Algeria, Bangladesh, Bolivia, Pakistan, Qatar, Republic of Macedonia, Saudi Arabia, Vanuatu, and Vietnam. Still, there aren’t many countries that have legitimized Bitcoin by declaring it legal tender and only one to do it, is Japan.
The United States has taken a positive stance toward Bitcoin, to prevent or reduce Bitcoin use for illegal transactions. Yet, there is also plenty of confusion and uncertainty, whether cryptocurrencies will regulated by the federal government, by states, or by an agency such as the SEC. Individual US states seem to be in competition for the title of the most crypto-friendly. While the Commodity Futures Trading Commission (CFTC) treats crypto as commodities, the Securities and Exchange Commission (SEC) insists they are securities, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) applies currency rules, and the Internal Revenue Service treats digital money as property.
While, the European Union (EU) has followed developments in cryptocurrency, it has not issued any official decision on legality, acceptance or regulation. In the absence of central guidance, individual EU countries have developed their own Bitcoin stances. A little over a month ago, two of the largest banking regulators within the European Union released reports calling for uniformity in the regulations of crypto assets and Initial Coin offerings (ICOs) across the continent. Germany is open to Bitcoin. While it’s considered legal, it is taxed differently, depending if you’re an exchange, miner, enterprise or user. The UK has a pro-Bitcoin stance and wants the regulatory environment to be supportive of the digital currency. In Cyprus, Bitcoin is not controlled or regulated and Malta has passed several laws crypto friendly laws.
In Japan, the Financial Services Agency, may have the best oversight on cryptocurrency exchanges, mandating increased security measures and suspending operations when necessary. The FSA has also created an industry study group for the cryptocurrency exchange industry.
South Korea is one of the largest crypto trading ecosystems in the world. In an effort to combat money laundering, in 2018 it banned anonymous trading and increased oversight on exchanges.
Australia considers Bitcoin a currency like any other and allows entities to trade, mine, or buy it and is not subject to double taxation. Currently they are debating a bill to apply AML to exchanges and prosecuting exchanges without a license.
China is perhaps the most famous example of a harsh cryptocurrency crackdown. Bitcoin is essentially banned in China. All banks and other financial institutions like payment processors are prohibited from transacting or dealing in Bitcoin. The nation’s authorities previously banned ICOs and cryptocurrency exchanges. In July 2018, state-run media in China reported that Bitcoin trading using the country’s national currency fell to less than 1% of the international total from a peak of more than 90 percent.
In Russia, Bitcoin is not regulated, and its use as payment for goods or services is illegal. The country’s financial regulator is working on cryptocurrency laws to protect individuals from cryptocurrency scams, while allowing businesses and individuals to work legally with cryptocurrencies.
Regulatory direction can give much needed certainty, help markets stabilize and drive wider participation, from investors that waiting on the sidelines because they fearful of the current levels of risk.
While we are seeing regulators around the world working on legal frameworks for crypto, the process is slow. The crypto market is down, because regulations are just beginning. Crypto’s greatest problem is also its greatest advantage: It’s brand new and everyone is trying to figure out how to regulate it. Once exchanges are standardized and offer more fiat on/off ramps, investors will be able to easily diversify their portfolios, without worrying about losing everything and running at the sign of a bear.
Before closing today’s post, while I won’t be in London tomorrow for this one, if you are, make sure to drop by “The Road Ahead for the Blockchain Ecosystem.” David Shrier will be giving a keynote speech and leading a distinguished panel on the future of blockchain. David is one of the leading experts in blockchain technology, an Associate Fellow at Oxford University, a lecturer at MIT Media Lab and an Advisory Committee Member at FINRA. The event is organized by London Blockchain Foundation and Barclays’ Rise.
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