The G20, an international forum for governments and central banks, has recently signed a declaration to regulate cryptocurrencies. The declaration was signed in Buenos Aires and covers many topics involving tax evasion, anti-money laundering, anti-terrorism, and public policy.
In Section 25, the declaration explicitly mentions cryptocurrencies:
“We will step up efforts to ensure that the potential benefits of technology in the financial sector can be realized while risks are mitigated. We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed.”
The declaration also notes the benefits of an “open and resilient financial system” that the cryptocurrency industry offers. They are also wary of to over-regulate which may stump the growth of innovation. Other than a simple acknowledgment to regulate crypto assets, no details have been disclosed.
The G20 is a powerful forum that combines the leaders across 19 countries and the EU with a focus on “economic, financial and political cooperation,” according to their website.
There is no need for panic. Fortunately, many governments and large forums, like the G20, have not banned the use of cryptocurrencies and instead are looking to work with it. They are conscious of its positive impacts and are only looking to protect investors, while not halting the growth of the technology. While many cryptocurrency enthusiasts are strongly opposed to regulation, the reality is that it is required to bring in institutional investors and reach mainstream adoption.
Many institutional investors, especially hedge fund managers are waiting for clear regulatory guidelines before investing. For example, hedge funds that trade equities in the US are regulated by the SEC. Currently, Bitcoin is not identified as a security, which means that by law, hedge funds cannot invest in Bitcoin directly or recommend it to their clients.
Instead, institutional investors are waiting for an ETF, which is a security and in turn, allows them to speculate on the cryptocurrency markets. For an ETF to be passed by the SEC, the underlying assets need to have clear legal guidelines.
In a discussion about a cryptocurrency ETF, SEC Chairman Jay Clayton has mentioned, “We care that the assets underlying that ETF has good custody and that they’re not going to disappear.” This was said after acknowledging, “We’ve seen some thefts around digital assets that make you scratch your head.”
Moving forward, exchanges will need to work more closely with regulatory bodies to provide proper custodial, trading, and accounting services, as well as a moderate level of insurance in the event funds, are lost or compromised. With more legal and operational infrastructure, there is no reason an ETF will not pass soon.
Yes. According to CNBC, Fidelity is working on custody and trade execution solutions to bring operational ease for their clients.
Fidelity’s “goal is to make digitally native assets, such as bitcoin, more accessible to investors,” Chairman and CEO Abigail Johnson said. “We expect to continue investing and experimenting, over the long-term, with ways to make this emerging asset class easier for our clients to understand and use.”
Coinbase has also launched Coinbase Custody which is another effort to simplify the process for storing and securing digital assets. Both regulators and service providers are working towards a more defined and practical future for digital assets. There is lots of activity with hundreds of millions of dollars being invested in this new industry.
Still, don’t be too relaxed. It is our responsibility to avoid over-regulation which can burden innovation and continue to promote the use of this global technology. We witnessed this first hand with the NY Bitlicense, which added large fees and cumbersome paperwork to the process for cryptocurrency companies to operate in the state of New York. As a result, many companies choose to operate outside of NY.
As long as the community stays vocal and involved, the future will be bright. We are excited for what is to come.