Could the Bitcoin and other Cryptocurrencies be Regulated?
Cryptocurrencies are, potentially, a way of transferring resources among economic agents that reside outside our borders. Its regulation could only be achieved through the greatest possible international cooperation.
The cryptocurrencies arose thanks to the birth of the blockchain, which is a technological option to ensure the integrity of the records through the web. Bitcoin is the first currency to use the blockchain globally, although the blockchain has been extrapolated for use in other industries beyond currencies.
Bitcoin is a type of digital currency or unregulated cryptocurrency (decentralized, without a central regulatory bank), designed to avoid government controls and simplify online transactions by getting rid of intermediaries when money is sent from one country to another.
Reasons to Regulate this Market
There is a recurrent discussion about the relevance or not of regulating Bitcoin since it apparently goes against what its decentralized nature claims.
However, as its growth and popularity continues, Bitcoin has had to overcome some regulatory and compliance problems at international level. These regulatory problems vary depending on the country. However, the most common concern is the possibility of being used for money laundering.
Bitcoin, and in general cryptocurrencies, have enthusiasts who promote them and have involved them in their usual transactional procedures. But they also have their detractors.
One of the most severe critics of cryptocurrencies, and especially Bitcoin, is the winner of the Nobel Prize in Economics Joseph Stiglitz, who argues that a possible regulation of this virtual currency would mean taking it out of existence.
In addition, he considers that the best current means of exchange is the US dollar and that people have turned to the use of Bitcoin mostly because of its secret status.
However, the market is accepting it naturally and little by little the conditions are created for these and other initiatives to prosper. If there is greater clarity, incentives would be aligned in the right direction.
In a certain way, Luis Alberto Moreno, president of the Inter-American Development Bank (IDB) agrees, pointing out that precisely the regulatory gaps are causing all this type of speculation to be generated. The IDB’s position is that regardless of what each country does, it is necessary that there be regulatory convergence at a multinational level.
In my opinion, in the first place, the authorities must define whether cryptocurrencies are securities, foreign currencies, commodities or other types of goods, and thus be able to give legal clarity to the object to be regulated.
Furthermore, governments must protect financial consumers in the face of what can be a novel product, of which we still have little information.
On the other hand, there are important companies (for example, JPMorgan, Microsoft, and Intel) that have turned to the use, research, and development of the blockchain to apply it in the habitual turn of their industries.
Our countries should seek the attraction of this type of high technology companies and generate a human, financial, technological, and legal environment to make them feel welcome.
Therefore, it is convenient that countries offer legal security and guarantees to investors at all levels, from those who invest part of their savings in the acquisition of cryptocurrencies or tokens in an Initial Coin Offering (ICO) to those more sophisticated looking for more complex services.
Currently, the Banco de Guatemala (Banguat) has stated that virtual currencies are not recognized as currencies in the country and, therefore, do not constitute a means of payment of legal tender. Beyond this, they are not prohibited and there are many people using cryptocurrencies and initiating a crypto-ecosystem in Guatemala.
Precisely, cryptocurrencies are, potentially, a way to transfer resources between economic agents who live outside our borders. For example, funds from the work of migrants in the United States to their relatives in Guatemala.
What have other jurisdictions done?
Countries such as China consider cryptocurrencies as a threat to the stability of the financial market, arguing the potential danger of tax evasion and contingencies. For this reason, the People’s Bank of China banned the companies of the country from making cryptocurrency placements, that is, ICO, as a method to finance themselves, declaring them as an illegal collection of funds.
In January of this year, South Korea announced stricter regulations for the cryptocurrency industry, in the midst of a turbulent expectation due to the proposed ban on the cryptocurrency trade conducted by the Minister of Justice a few days ago.
Currently, in South Korea, those who use cryptocurrencies should use their real names for their cryptocurrency marketing accounts. In addition, the application of fines for those who fail to comply with the regulations was announced.
On the other hand, Japan converted Bitcoin into a legal method for conducting transactions. After the implementation of this new legal paradigm, the use of cryptocurrency was enabled in hundreds of thousands of premises. Also, Estonia is about to issue its own cryptocurrency and has turned its governance to digitization and the use of the blockchain.
Recently, in the United States, a Senate bill that would require an update on money laundering laws was established to control potentially illicit transactions. Additionally, there is a bill of the Chamber that would exempt from the capital gains report those cryptocurrency transactions of up to US $600.
What to know if you take the step
Bitcoin was originally created in response to the 2008 financial crisis. The community of origin had a strong libertarian turn similar to the free software culture. However, many of the cases of definitive use of the blockchain could be converted into standard rates for established participants such as transnationals, governments, and central banks.
It is true that there is a regulatory pressure on Bitcoin and the entire cryptocurrency market. However, regulatory movements from individual national countries, given the transnational vocation of cryptocurrencies, are not large enough to have it under full control.
Therefore, the effective regulation of virtual currencies could only be achieved through the greatest possible international cooperation.
The question is, should we invest in Bitcoin or other cryptocurrencies? My opinion is no. At least until its use and volatility stabilize. I think it’s still something new and we do not have enough information to make long-term decisions. Bitcoin, Ether, and other cryptocurrencies should not be seen as investment instruments, an action or bonus.
It is advisable to keep Bitcoin or Ether for efficient transactions or to participate in ICO or Fintech that exchange their tokens for this type of currency. As long as the jurisdictions involved allow it.
The recommendation for those investors or acquirers of cryptocurrencies, focuses on previously verifying two conditions: (i) that the currency or token they acquire has incorporated some added value (for example, the security token); or, (ii) it is the only way to obtain a certain good or service (known as a utility token).
There are quite qualified voices that assure that the blockchain will do to the financial system what the internet did to the media.
Preparing for these changes means investing in research and experimentation. Those who do invest will be in a good position to prosper in the new emerging financial system.
Finally, the crypto environment (and the blockchain, in general) poses a series of technological, regulatory, consumer protection, energy (due to the large amount of energy that is used to carry out transactions), academics (due to the fundamental role that Universities and educational institutions must comply with in order to link this generation with a technology with high possibilities) and governmental challenges, starting with the decision to regulate or not the local cryptocurrency market.
* Lawyer of G & D Asesores Jurídicos (Costa Rica)