State of Crypto Public Policy (Right now)
What’s happening with blockchains? Last week I had the pleasure of speaking at Deconomy in Seoul, South Korea.
My talk focused on what’s happening in the regulatory and media spheres regarding blockchain. My intent was to give an update, provide some historical context, and give an approximation for what we can expect in the future.
The video of the talk will be up soon but I thought I’d provide a short summary of what I discussed.
While the price of bitcoin was a topic you couldn’t escape in 2017, one group that was surprisingly silent for most of the year were regulators. In fact, putting aside activity in 2014–15, it’s been relatively quiet over the past several years as regulators have felt comfortable with the “on-ramps, off-ramps” approach to AML-KYC established by FinCEN back in 2013.
My very complicated mathematics on this are as follows :
Increase in price = increase in focus.
This is a one-way function. I don’t think it works in reverse.
While the search engine hits, price, and popular fervor have calmed down over the past several months, regulators have awoken from their slumber.
Blockchains impact not just money and banking but represent a nexus of technology, economics, banking, consumer affairs, security. They also have knock on effects on politics, crime, energy management, money laundering and taxation to name just a few.
With this in mind, what are regulators saying? First, we should remember that blockchains encompass sectors that are regulated at the global, regional, and national levels (and in the case of the US, at the state level). The European Banking Authority has stated that one of the challenges they face is trying to decipher exactly which regulations each blockchain activity should sit under.
In recent months, a broad cohort of politicians and regulators have commented on cryptocurrencies, mainly focusing on their supposed inherent danger. Managing Director of the IMF Christine Lagarde said they represented “a potentially major new vehicle for money laundering and the financing of terrorism” while Governor of the British Central Bank, Mark Carney, called them “a potential revolution” in the financial system. Most others have stated that cryptocurrencies are not money and are merely tradable assets.
Some countries, such as China, have decided to crack down completely with bans on exchanges, which facilitate cryptocurrency exchange. India shut down banking relationships with crypto companies. Other regulating bodies such as the European Commission are taking a deeper look and will report later in 2018 before deciding what to do. The SEC, CFTC, and states are all trying to figure out how to handle the exchange business, with the SEC taking aim at the worst actors in the ICO space. At a supranational level, the G20 agreed to look in more detail and report back later in the year. There has also been some movement around money laundering and consumer protection but there has yet to be a coherent, coordinated and comprehensive response globally.
So where is all of this headed? I’ve been involved in this industry long enough to know it’s foolish to pretend you know what the future holds, but there are some key themes emerging.
I’ll highlight the top three I see as the primary activity drivers over the coming months:
- First, I think there will be a renewed focus on AML/KYC procedures (or lack thereof), with specific scrutiny on both exchanges and certain token-issuing platforms and projects. I presented on this last week and just today both Korea and Japan announced renewed efforts in this area.
- Second, there will be a tamping down of suspected market manipulation on exchanges. This will come in the form of enforcement actions as well as exchanges actually asking to be regulated in some form or fashion.
- Third, token proliferation will continue but will be dramatically curtailed by enforcement actions against the worst actors in the space, regulation-by-acquisition as more “established” players take over previously grey-market exchanges, and just general exhaustion of energy and capital for sham projects.
Other issues that will continue to drive activity include taxation of digital asset purchases and transactions, the use of blockchain by dark net marketplaces and ransomware perpetrators, energy use, the advent of decentralized applications, and the ongoing issues stemming from governance and other community generated failures.
Over the longer term, we will likely see global regulators attempt to put in place a framework that others can follow.
I suspect that there will be more policy activity in the next 6 months as there has been in the past 6 years.