The Three Phases of Government Regulation in Cryptocurrencies
The crypto currency markets are currently providing substantial returns (again), and an alternative to fiat. In particular, the US dollar, the cornerstone of the Western Petroleum hegemon, is threatened. Although regulators still seem to be stymied by cryptocurrencies, if you think they will let their empire slip through the cracks at the hands of ‘internet money’, you are sorely mistaken. With cryptocurrencies mentioned in the Trump tax plan, a CFTC meeting to discuss blockchain, and several nations mulling over the creation of digital fiat, here’s how we expect US government regulation in cryptocurrencies to pan out.
Regulation
As crypto mania continues to whittle away fiat market share, and hide under the radar of the IRS, the government will likely step in for their share of the pie. We have already seen hints at this in the Trump tax plan where crypto-to-crypto transactions are now taxable, not just crypto-to-fiat. However, enforcing this is likely going to prove much more difficult than it sounds. Enter phase two.
Illegalizing Cryptocurrency Transactions
Let’s draw a parallel to Napster in the late 90’s, early 2000’s. It began as a peer-to-peer service that offered users the ability to share music for free, without the necessity of a third party. This quickly led to copyright infringement, and the music companies started to crack down, making examples of some users in order to strike fear in the hearts of others. Of course, as we all know, it is still possible to find and download pirated material online for free.
Digital Fiat
To continue with our Napster example, eventually the major media companies came around, adapted to the times, and offered platforms like iTunes and Amazon music for users to legally download and stream music. Similarly, Central Banks are likely to issue digital fiat, and ban or restrict cryptocurrencies, thus making easier for the masses to simply play by the rules again. That being said, cryptocurrencies are here to stay regardless of what regulators do. The stubborn will likely gravitate to security and privacy minded cryptos like Monero, Dash and ZCash among others to try to hide under the radar, while the rest of the risk averse public will play by the rules with digital fiat.
Cryptocurrency prices, as a forex pair not only indicate the strength of cryptos, but the weakness of the fiat against which they’re paired. In order to keep the global empire, central bankers and other regulators are bound to impose regulations on the cryptosphere. Hence it is wise to prepare for this and have a strategy in place. As digital fiat is introduced, the public will likely follow the will of the establishment, but educated crypto enthusiasts will gravitate toward cryptocurrencies with financial privacy in mind.
What about Bitcoin? Bitcoin is neither fiat, nor perfectly anonymous. Although there is a small chance Bitcoin will go the way of MySpace, it is likely to remain an investment vehicle.