A very common thought or worry that continues to loom over many potential crypto investors is the fear that one day - governments will suddenly come down hard on Bitcoin and Crypto, rendering them illegal, causing their value to crash overnight. Such an event would undoubtedly cause the value of all cryptos to plunge, resulting in a mass exodus in the cryptocurrencies sector.
This is understandably a valid fear and concern, given the fact that although Bitcoin can never be out rightly "banned or shut down", governments over the world do possess the power to impose regulations that would significantly hinder the adoption of cryptocurrencies.
In my opinion, although such a black swan event cannot be ruled out completely, the chances of it occurring are extremely slim, and are getting slimmer and slimmer by the day. In fact, I am inclined to think some level of regulation would be even be favorable for the cryptocurrency space, helping to bring extra legitimacy and trust to the sector, which in turn is important in attracting more and more investors in the institutional league.
Here, I will outline a couple of reasons why:
Things are looking very positive on the US Regulatory front
Even when speaking of something as global and decentralized as Bitcoin, the United States is still undoubtedly one of the global leaders and benchmarks when it comes to setting standards on cryptocurrency regulations. Throughout most of 2016 to 2020 during the Trump administration, then-in-power regulators like Steve Mnuchin (United States Secretary of the Treasury) and Jay Clayton (Chairman of the U.S. Securities and Exchange Commission) maintained largely ambiguous or leaned slightly negatively about their stance on cryptocurrencies, calling for increased clamp-downs and restrictions on digital currency wallets.
However, immediately since coming into office, the new Biden administration has frozen the previously proposed regulations on digital currency wallets. On top of this, the incoming United States Secretary of the Treasury, Gary Gensler, is highly respected and hugely knowledgeable in the crypto space. I can't emphasize enough just how positive this is for the cryptocurrency space, Gary Gensler in 2018 taught a 24 lesson course on Bitcoin for MIT, and the full course is available for free online here. What this means is - for the first time, we would have a US Secretary of the Treasury who is adept and knowledgeable in crypto space. No more ancient/outdated remarks like "Crypto is only used for money laundering or illict payments". Likewise, Janet Yellen, although having made some negative remarks regarding cryptocurrencies in the earlier days, appears to be softening her stance and moving towards the direction of "favorable regulation".
Janet Yellen (left) and Gary Gensler (right).
Increased institutional adoption will lead us past the point of no return
I still remember the good old days of crypto in 2017 - 2018, when the mere rumor of a company or institution "considering" crypto would immediately cause a price rally for more than a few hundred percent in a span of a few hours! These rumours and price pumps were nothing short of ridiculous, with the prices often plunging as quickly as the rumours faded. Fast forward to 2021 today, on a weekly basis, we're getting official reports of companies and hedge funds adding Bitcoin to their balance sheet, and prices don't move an inch. This is a sign of a rapidly maturing market that is now composed of institutional players with considerable size, instead of a small market filled largely with speculative investors looking for the next quick pump.
Just in the last few months alone, we've seen the relentless inflow of institutional investors piling into Bitcoin as an alternative store of value to gold and a hedge against inflation. Banks and asset managers like Goldman Sachs, JP Morgan and Fidelity are all starting to realize the legitimacy of crypto as an asset class that is here to stay. The list grows every day - you can stay up to date with the latest institutional purchases here. Institutions now own approximately 6% of all Bitcoin, up from a negligible number even in the first half of 2020. This trend is showing no signs of slowing down.
With more and more institutional vested institutional interest and products being built around crypto and Bitcoin, needless to say, it would be harder and harder for regulators to completely ban Bitcoin or crypto but rather, the pressure would be stronger and stronger for favorable regulation. This, coupled with the new blood of regulators we spoke above earlier, creates an extremely bullish concoction.
Some level of regulation can be a healthy impetus for growth
I commonly hear comments like "Regulation will completely kill the crypto sector" or "if cryptocurrencies are regulated, then it defeats the point of cryptocurrencies to begin with".
While I used to share this sentiment in the past as well, my views have slowly begun to change in the last few months. I do not believe we would ever see full institutional buy-in and trust in the crypto sector unless some level of regulations are set. Without regulations and checks in place, the crypto sector is like the wild wild west where companies and people alike can flood money into the sector and manipulate the market. Would an asset management firm with billions of dollars of AUM be able to invest confidently in an unregulated sector? Until some level of regulations are put in place to safeguard the these asset managers who are in turn safeguarding their client's assets, most of these firms would merely be dipping their toes into the crypto sector at best. But when a healthy level of regulation arrives and confidence in the sector builds, then the real adoption begins. I strongly believe that this would usher in the new era of crypto, cementing its place as a global institutional asset.
What are your thoughts on the effect of regulations in the cryptocurrencies sector? Do share your thoughts and comments. On a side note, I am pleased to announce that Everything About Bitcoin has now also been into on to the Seedly Community as a thought leader and opinion sharer on the Bitcoin and Crypto space. Follow our updates on the Seedly Community where our articles will also be shared with a larger following.