Is the crypto industry under attack?

The last months of 2020 seemed like a new dawn for cryptocurrency fans after a long “night” that lasted more than two years. And indeed, there was more than enough positive news: the meteoric rise of bitcoin, the addition of cryptocurrencies to the PayPal wallet, the stunning development of the DeFi market, etc.

However, at the end of the year, a series of events occurred that cast doubt on the cloudless future of the crypto industry. Regulators in different countries, one after another, tightened their policies regarding cryptocurrencies, which did not take long to affect the digital asset market as a whole.

We propose together to understand what caused such unfriendly gestures of the financial supervisory authorities in relation to cryptocurrencies. And let’s think about the most likely options for further developments.

The SEC strikes a surprise

On December 23, the US Securities and Exchange Commission (SEC) filed a lawsuit. An authoritative regulatory structure accuses Ripple and its management of knowingly breaking the law for a number of years by selling securities to investors in the form of XRP tokens.

The market responded to the statements and actions of the SEC with a lightning-fast drop in the value of XRP – more than 2 times. Several of the largest cryptocurrency exchanges and services at once announced either the delisting of Ripple tokens or the temporary cessation of work with them:

• OKCoin and Coibase have stopped trading and accepting deposits in XRP from January 4 and 19, 2021, respectively.
• Mike Novogratz’s crypto bank Galaxy Digital suspended work with this asset the very next day after the lawsuit was filed.
• The largest exchange, Bitstamp, has so far limited only American users to work with XRP.
• The over-the-counter OTC platform B2C2 has also set certain restrictions. Interestingly, the Japanese financial giant – SBI Holdings – the new owner of this platform, who became it just 2 weeks before the events described, spoke out in support of Ripple. The official statement of the company notes that XRP is not a security under the law. And nothing threatens to work with him in Japan.
• Crypto.com is also removing the ability to work with XRP tokens for US citizens from January 19, 2021.

In Ripple itself, such actions by the SEC are called a blow to the entire cryptocurrency industry. XRP developers called on the regulator for mutual pre-trial cooperation in resolving contentious issues.

The ban on working with crypto-instruments: a new trend in the field of state regulation?

If the SEC claims negatively affected only one company, then the actions of similar bodies in other countries will affect the entire industry. For example, the Financial Conduct Authority (FCA) of the UK has required all companies that work with crypto assets to undergo a special registration procedure from January 10.

At the same time, from January 6, 2021, a ban on working with crypto derivatives for retail investors came into effect in the UK. This means that now an ordinary person will not be able to buy, sell or distribute derivatives of cryptocurrency financial instruments:

• futures;
• options;
• stock notes, etc.

Many companies that provide services for working with such assets have already criticized the introduction of such a restriction. They believe that the FCA will force investors to go to unregulated platforms that are unable to protect their capital from financial risks. The leadership of Coinshares, Hargreaves Lansdown, Eden Block is in solidarity with the fact that the FCA has demonstrated only one thing – the Office simply does not know and does not understand how to regulate the crypto industry.

In early January, The Sunday Times reported that HSBC, the UK’s largest bank, was blocking transfers that fall under suspicion in connection with crypto exchanges. This fact is of particular interest. After all, quite recently HSBC was at the center of a high-profile scandal: with the help of this financial and credit institution, oligarchs and criminals found loopholes for tax evasion and legalization of illegal income.

In Germany, new tax rules effectively banned the trading of crypto derivatives for retail investors. And the head of the European Central Bank has repeatedly stated that cryptocurrencies have contributed to a significant increase in the number of money laundering operations.

Fight for control of crypto

Today, there is a trend towards concerted actions of regulators, and they are aimed at introducing significant restrictions on any activity with cryptocurrency. At the same time, on January 5, 2021, the Office of the Comptroller of the Currency (OCC), which belongs to the US Treasury, allowed banks to issue their own stablecoins. Although a similar project from Facebook – Libra – the regulator did not grant such permission.

The head of the Avanti cryptocurrency bank, Caitlin Long, is sure that the essence of the OSS decision comes down to obtaining control over the work with all digital assets by the largest banks.

The question arises – why is it now that the regulators began to actively interfere in the work of the crypto market? Maybe because just 2 months after adding cryptocurrencies to their wallet, PayPal began processing hundreds of millions of dollars worth of crypto transactions in a day? For example, on January 6, 2021, the volume of Bitcoin transfers via PayPal amounted to $129 million, and on January 11, $262 million.

Another point could also have influenced: after reaching the price of $40,000, the capitalization of only one bitcoin reached 7% of the market capitalization of all gold mined in the world. The total value of the cryptocurrency market has exceeded $1 trillion.

It got to the point that a well-known investor – Dennis Hartman – called bitcoin “gold for millennials”, and the head of MicroStrategy started talking about BTC as “digital gold”. Or has the very fact of Ripple’s cooperation with a hundred of the largest banks become a real threat to SWIFT?

Be that as it may, the crypto industry is facing serious tests in the form of opposition from regulators. And the prospects for further integration of the industry into the global financial system depend on how quickly it manages to recover from the blows and their consequences.

Today you can be sure of one thing: getting rid of cryptocurrencies is no longer possible for anyone. Too much money has come into this industry. And such serious players on the world stage as China or Japan are interested in the development of various aspects of the use of cryptocurrencies.