the six reasons that accelerate the movement of regulation

After the acceleration time, the regulation comes according to the well-known innovation-speculation-regulation cycle. Inaugurated during the imprisonments associated with Covid, the cryptocurrency market continues to grow and today reaches a valuation of $ 2.3 trillion, more than subprime in 2008 (1,200 billion). Admittedly, these became widespread in a host of financial products, causing the crisis of confidence between the banks. Yet the Bank of England has not recently hesitated to make this comparison. The fear is all the greater as the enthusiasm for cryptocurrencies, which is perceived as an alternative investment, feeds precisely on the crises and upheavals of the traditional economy.

Therefore, regulators around the world are working to control, if not contain, this digital wave. This desire to regulate is now well established in the United States, after much hesitation, and US President Joe Biden is now urging monetary and financial authorities to focus on the digital dollar and the risks associated with cryptocurrencies, especially in the areas of fraud or money laundering.

“There is a realization”confirm to The gallery MEP Aurore Lalucq (Alliance of Socialists and Democrats), who is in favor of extending European directives from the financial world to cryptocurrencies. Among these adaptations is the vote on MiCA (Maket in Crypto Assets), which will shortly bring a first stone to regulation at European level.

What are the factors that accelerate the regulation of cryptocurrencies? The gallery identified six.

Inflation fuels the search for alternative investments

The world is now facing an inflation that has not been reached for decades, at least in the developed countries. The war in Ukraine has not helped and brought energy prices to historic heights. As a result, central banks, primarily the Federal Reserve, are engaged in a drastic tightening of their monetary policy with the effect of raising interest rates, particularly on government bonds, and weighing on equity markets. Faced with this uncertain market context, investors are looking for safe haven against inflation. And cryptocurrencies could easily take on this role, even though gold has gained almost 20% since the start of the conflict.

Stimulation plans, money creation and inflation have changed behavior. One wonders more about the currency. But it’s not just for cryptocurrencies “, temperament William O’Rourke, lawyer specializing in the sector at ORWL. Acceleration of the movement of regulation or affirmation?

“There is no obvious connection with the Ukrainian crisis. The MiCA Act was linked to Facebook and its Libra crypto project in 2018 (since abandoned editorial note). Before that, it gave craze for ICOs (initial coin offerings) “PSAN” status in 2019, which introduced a demanding registration with AMF. Today, above all, the war in Ukraine is creating political pressure and fantasies about the Russian oligarchs, especially with the AML texts (combating money laundering) which is currently under discussion in Brussels “, notes the lawyer, whose clients do indeed see,” MiCA arrives fairly quickly, although we will see the effects in three years, after the time of the infusion and transposition of the states “.

2. The growing weight of cryptocurrencies in savings

The popularity of cryptocurrencies is undeniable. It is even installed in France with 8% of French people already investing in cryptocurrencies, according to a study by KPMG / Adan. Russia also occupies the top of the world podium for the use and creation (“mining”) of cryptocurrencies. With Ukraine, the two countries ranks 4th and 18th in cryptocurrency adoption worldwide, respectively, according to Chainalysis. In some regions with cold climates and cheap electricity, especially in Siberia, many Russians have made it a supplement or even a main source of income.

But after individuals, it is now traditional financiers who turn to cryptocurrencies. Even a private bank, Delubac & Cie, has just been granted digital asset services operator (PSAN) status by the Autorité des marchés financiers (AMF) to offer its clients crypto assets.

In the United States, as in Europe, it has become clear. “ In September 2021, 13% of US hedge funds and 23% of European hedge funds owned cryptocurrencies.notes the Bank of England, which, however, clarifies that these are probably investments of low amounts.

A way to circumvent sanctions

Across all digital asset classes, “cryptocurrencies worry me most in the Russian context “recently declared Christine Lagarde at the helm of the ECB.

And with good reason, the Russians hurried with the war to bitcoin. The volume of purchases of cryptocurrencies in rubles reached record highs in March, and bitcoin prices have risen in recent days (+ 15% since Sunday to almost $ 44,000), encouraged by the idea that the Ukrainian crisis proves that a decentralized currency not applicable. controlled by a government, according to the Kaiko cabinet quoted by AFP.

Another popular cryptocurrency in Russia is Tether, a stablecoin issued by a private company that guarantees to have assets equivalent to its issuance to ensure that a Tether is worth a dollar.

Is this enthusiasm a threat? “Yes“, said the head of the European Central Bank after pointing out that cryptocurrencies escaping the traditional banking system are”certainly used as a means of trying to circumvent the sanctions that have been imposed by many countries around the world against Russia and specific actors“.

Individuals or Russian companies “apparently trying to convert their rubles into cryptocurrencies “, noted Christine Lagarde, noting that the amounts of rubles that have been converted have reached a particularly high level since the sanctions from the West. In particular, the sanctions imposed by Europe, in particular the exclusion of certain Russian banking institutions from Swift’s international interbank system.

This renewed interest in cryptocurrencies has also been confirmed in other countries subject to sanctions, such as Iran and North Korea.

Conversely, a way of receiving assistance

The flow of cryptocurrencies is also increasing in the other direction. From the first hours of the conflict, the Ukrainian government opened addresses and cryptocurrency wallets so that it could receive bitcoins and other cryptocurrencies. Other personalities participating in these donations, such as the head of Twitter Jack Dorsey, also support bitcoin, whose price today reaches $ 40,089 per. unit.

Anyone with cryptocurrencies can therefore send them to these crypto addresses. Since the start of the war effort, these donations received via blockchain have flowed in, according to the firm Chainalysis. Eastern European transactions are particularly high for addresses outside the region.

5. The multiplication of applications

Long confronted with the question of its use in daily life, since its inception in the wake of the 2009 financial crisis, bitcoin is still trying to get out of its image as a volatile and purely speculative asset.

Faced with it, its rival Ethereum, thanks to its protocol, is at the beginning of a new state to be apprehended by regulators: NFTs. These non-fungible tokens allow one buyer to obtain a verified digital token proving that the purchased work is an original work. A concrete application that meets lucrative success in art and beyond. Already, new NFT startups are popping up to populate the brands’ virtual worlds, the metavers promised by Facebook, now Meta.

Crypto-assets: French startups organize around NFT Factory

In addition to the collection, brands seek to create new payment ecosystems in its metavers, such as craze for stablecoins, these digital cryptocurrencies, supported by the dollar (or another currency), which allow instant exchanges, securely and at no cost in digital worlds created for users. consumer.

These stack coins are therefore in the eyes of regulators. United Kingdom, The Treasury believes they should be regulated in the same way as existing means of payment, by the Payment Systems Regulator (PSR) and by the Bank of England (BoE), if their size creates a systemic danger, he said in a report.

Other initiatives are also planned by the Ministry of Finance, such asexplore ways to make the UK taxation system more competitive to promote the development of the cryptocurrency market ”.

Another use sought by these assets is a safekeeping. But for now, regulators are warning: bitcoin does not constitute (…) a store of value, but rather a speculative asset, somewhat related to tulip bulbs in the Netherlands in the 17th century “said Bank of France Governor Francois Villeroy de Galhau in March.

6. End dollar dominance

As sanctions against Russia fall, the government is stepping up measures to support the ruble and reduce its dependence on the dollar. The idea of ​​accelerating on a digital ruble in the family of central bank digital currencies (MNBC) is even gaining ground in Moscow, as are several experiments.

While Europeans are seeking to put pressure on Russia by reducing hydrocarbon orders, Moscow is imposing payment in rubles in return … and perhaps tomorrow in bitcoin, as an elected Duma official recently suggested. . An idea that refers to the Petro project in Venezuela, a digital currency supported by oil prices.

To regain control of the digital field, following the first alarm launched by Facebook with its own digital currency project (since abandoned), all the major central banks are working on the subject of a digital central bank currency. In Europe, the ECB is betting on the creation within 5 years of a digital euro as a secure and anonymous central bank currency for local payments under terms not yet defined. Because the commercial banks are always resisting

Following a first case of use during the Beijing Olympics, the Chinese government is pushing the fires on the e-yuan, even though all activities around cryptocurrencies have been banned in 2021.

Finally, the regulation of cryptocurrencies in a second step may lead to new taxes. Following the ban on these assets,India must introduce a state-subsidized “digital rupee” and impose a 30% tax on profits from virtual currencies as part of new tax measures. This will also generate new tax revenue at a time when states may have a harder time financing themselves in the markets.

The digital ruble, Putin’s joker to circumvent Western sanctions

(With AFP)