Two sides of the coins
Updated: Jul 16, 2021
Crypto has arrived at a fork in the road (let’s avoid talking about the toss of a Bitcoin here). One route keeps it in the ‘Wild West’, as the Financial Action Task Force called it, while the other leads to the Big City. Logic suggests that crypto will ditch the Stetson and put on the pinstripe, though, as the underlying technology becomes more useful to society and more rewarding for investors in a wider range of digital asset ventures.
Of course, the Wild West trail would be true to crypto’s libertarian and anti-governmental roots. This would mean that the industry continued to prize freedom and anonymity above consumer protection and transparency. Exchanges would do their best to remain outside national jurisdictions. This is where crypto came from and, it seems, where many of today’s market participants would like it to stay.
That would be a mistake, though. Some crypto exchanges are coming under fire from regulators (Binance, the world’s biggest, has been in the news in recent weeks). That may not bother true believers, who have – or should have – enough knowledge to make informed decisions about the risks involved in crypto investment.
But there are very few of these superfans, in relative terms. No one knows exactly how many crypto investors there are in the world, although studies suggest there are about 100 million Bitcoin owners, which is a reasonable proxy. Even if the real number is a multiple of that, it is still a modest percentage of the people who use the world’s existing financial system.
And it’s unlikely that the billions of people who haven’t yet found the time or motivation to become crypto experts will begin to trust exchanges that are the subject of regulatory warnings and negative headlines. That would be a shame, because digital assets may have a lot to offer to investors – and the real economy.
It’s unlikely that the billions of people who haven’t yet found the time or motivation to become crypto experts will begin to trust exchanges that are the subject of regulatory warnings and negative headlines.
The potential for eye-catching returns and the benefits of diversification are among the attractions for investors. But a new generation of entrepreneurs also has a vision for broadening the use of blockchain and digital assets beyond speculation alone. They want to harness the power of its inherent decentralisation to create a different financial system that is more accessible, cheaper and more efficient because it doesn’t rely on middlemen. This has the potential to increase access to payments, savings and insurance products for the unbanked and underbanked, for example.
It isn’t realistic to expect decentralised finance – or DeFi – to change the global economy while staying outside regulatory frameworks, though. Investors understand this and are supporting business models that emphasise transparency and compliance.
Digital currency payments provider Circle and exchange operator Bullish are supported by household-name investors and both plan multi-billion dollar IPOs in combinations with SPACs, for example. And some regulators – such as those in Switzerland and Singapore – are showing that they can take a progressive approach that balances freedom and accountability.
Some regulators – such as those in Switzerland and Singapore – are showing that they can take a progressive approach that balances freedom and accountability.
So the Big City route leads crypto into a more mainstream future. That might be bad news for crypto ideologues – and people who liked the Wild West for more nefarious reasons – but it’s good news for investors in exchanges and other digital asset ventures. It could also be good news for the billions of people with limited or no access to financial services. That makes for a strange set of allies, but stranger things have happened – especially in crypto. Have you heard about Dogecoin?