After the time of acceleration, comes that of regulation, according to the well-known innovation-speculation-regulation cycle. Consecrated during the confinements linked to Covid, the cryptocurrency market continues to grow, reaching today a valuation of 2,300 billion dollars, more than the subprime in 2008 (1,200 billion). Admittedly, these were disseminated in a multitude of financial products, which caused the crisis of confidence between the banks. Still, the Bank of England has not hesitated recently to make this comparison. The fear is all the greater as the enthusiasm for cryptocurrencies, perceived as an alternative investment, feeds precisely on the crises and upheavals of the traditional economy.
Therefore, all over the world, regulators 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 encouraging monetary and financial authorities to focus on the digital dollar and the risks associated with cryptocurrencies, particularly 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 pleads for the extension of European directives from the world of finance to cryptoassets. Among these adaptations, the vote of the MiCA (Maket in Crypto Assets) which will shortly bring a first stone to regulation at European level.
What are the factors that are accelerating the regulation of cryptocurrencies? The gallery identified six.
1. Inflation fuels the search for alternative investments
The world now finds itself facing an inflation not reached for decades, at least in the developed countries. The war in Ukraine has not helped, propelling energy prices to historic highs. As a result, the central banks, first and foremost the Federal Reserve, are engaged in a violent tightening of their monetary policy, with the effect of raising rates, particularly on government bonds, and weighing on the equity markets. Faced with this uncertain market context, investors are looking for safe havens from inflation. And cryptocurrencies could well take on this role even if gold has gained almost 20% since the start of the conflict.
“ Stimulus plans, money creation and inflation have changed behavior. One wonders more about the currency. But it’s not just to cryptocurrencies “, tempers William O’Rourkelawyer specializing in the sector at ORWL. Acceleration of the movement of regulation or confirmation?
“There is no obvious correlation with the Ukrainian crisis. The MiCA law was linked to Facebook and its Libra crypto project in 2018 (since abandoned editor’s note). Before that, the craze for ICOs (initial coin offerings) gave “PSAN” status in 2019, introducing a demanding registration with the AMF. Today, the war in Ukraine creates above all political pressure and fantasies around the Russian oligarchs, especially with the AML texts (fight against money laundering) which are currently under discussion in Brussels”, observes the lawyer whose clients see, admittedly, ” arrive MiCA quite quickly, although we will see the effects in three years, after the time of the infusion and the transposition of the states “.
2. The growing weight of cryptocurrencies in savings
The popularity of cryptos is undeniable. It is even installed in France with 8% of French people who have already invested in cryptos, 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 rank 4th and 18th respectively in cryptocurrency adoption worldwide, according to Chainalysis. In some regions with cold climates and cheap electricity, notably in Siberia, many Russians have made it a supplement or even a main source of income.
But after individuals, it is now traditional finance players who are turning to cryptocurrencies. Even a private bank, Delubac & Cie, has just obtained a status of digital asset services operator (PSAN) from the Autorité des marchés financiers (AMF) to offer its customers cryptoassets.
In the United States, as in Europe, it has become obvious. “ In September 2021, 13% of US hedge funds and 23% of European hedge funds owned crypto-assets.notes the Bank of England, which nevertheless specifies that it is probably a question of investments on low amounts.
3. A way to circumvent sanctions
Across all digital asset classes, “crypto-assets concern me the most in the Russian context”recently declared Christine Lagarde at the head of the ECB.
And for good reason, with the war, the Russians rushed to bitcoin. The volumes of purchases of cryptocurrencies in rubles reached record highs in March and bitcoin prices have been climbing in recent days (+15% since Sunday to nearly $44,000), galvanized by the idea that the Ukrainian crisis is proving the usefulness of a decentralized currency not 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 hold assets equivalent to its issuance to ensure that a Tether is worth a dollar.
Is this enthusiasm a threat? “Yes“, said the boss 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 decided by many countries around the world against Russia and specific actors“.
Individuals or Russian companies”are obviously trying to convert their rubles into crypto-assets”noted Christine Lagarde, noting that the volumes of rubles converted have reached a particularly high level since the sanctions imposed by the West. In particular, the sanctions imposed by Europe with in particular the exclusion of certain Russian banking establishments from the Swift international interbank system.
This renewed interest in cryptocurrencies has also been confirmed in other countries subject to sanctions, such as Iran and North Korea.
4. Conversely, a way to receive aid
The flow of cryptos is also increasing in the other direction. From the first hours of the conflict, the Ukrainian government opened addresses and cryptocurrency wallets allowing it to receive bitcoins and other cryptocurrencies. Other personalities participate in these donations, such as the boss of Twitter Jack Dorsey, also support of bitcoin whose price today reaches 40,089 dollars per unit.
Anyone with cryptocurrencies can therefore send them to these crypto addresses. Since the start of the war effort, these donations received via the blockchain have been pouring in, according to the firm Chainalysis. Eastern European transactions are particularly high to addresses outside the region.
5. The multiplication of uses
Long confronted with the question of its use in daily life, since its creation in the aftermath of the financial crisis in 2009, bitcoin is still trying to get out of its image as a volatile and purely speculative asset.
Facing it, its rival Ethereum is, thanks to its protocol, at the origin of a new mode to be apprehended by regulators: NFTs. These non-fungible tokens allow a buyer to obtain a verified digital token, proving that the purchased work is an original. A concrete use that meets with lucrative success in art and beyond. Already, new NFT startups are emerging to populate the virtual worlds of brands, the metaverses promised by Facebook, now Meta.
In addition to the collection, brands seek to create new payment ecosystems in its metaverses, like the craze for stablecoins, these digital cryptocurrencies backed by the dollar (or another currency) and which allow instant exchanges, secure and without intermediary costs in digital worlds created for the user-consumer.
These stablecoins are therefore in the sights of regulators. UK, the Treasury considers that 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 measures are also planned by the Treasury, such as “exploring ways to make the UK taxation system more competitive to encourage the development of the crypto-asset market”.
Another use sought by these assets is that of a store of value. But for now, regulators warn: bitcoin “does not constitute (…) a store of value, but rather a speculative asset, somewhat akin to tulip bulbs in the Netherlands in the 17th century”Bank of France Governor Francois Villeroy de Galhau said in March.
6. End dollar dominance
As sanctions descend on Russia, 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, like several experiments.
As the Europeans seek to put pressure on Russia by reducing hydrocarbon orders, Moscow is imposing payment in ruble in return… and maybe tomorrow, in bitcoin, as a Duma elected official recently suggested. . An idea that refers to the Petro project in Venezuela, a digital currency backed by oil prices.
To regain control of the digital field, after the first alert 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 banking on the creation within 5 years of a digital euro as a secure and anonymous central bank currency for local payments, according to terms that have yet to be defined. Because the commercial banks are always resisting
After 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 cryptos could lead, in a second step, to new taxes. After the prohibition of these assets, theIndia is to introduce a state-backed “digital rupee” and impose a 30% tax on profits from virtual currencies as part of new fiscal measures. This will also generate new tax revenue at a time when States may have more difficulty in financing themselves on the markets.