Cryptocurrencies began as a means for people to get around the government control of money, but more and more they are becoming under the control of these same governments. Just this year more than 30 government regulators have exerted varying degrees of control over cryptocurrency and ICO (Initial Coin Offering) markets.
Japan already has 11 cryptocurrency exchanges under government regulation, which happens to represent 60% of the Bitcoin market. Elsewhere, China has banned cryptocurrencies and token sales, while in the US there have been two government edicts: the SEC announced that it considers ICO token sales subject to federal law, and the Commodity Futures Trading Commission (CFTS) stated that it sees ICOs as commodities. Meanwhile in the UK, government hinderence has been blamed for stymying the growth of blockchain-related FinTech in the country.
Where will this all lead? It depends on whom you ask. IMF Managing Director Christine Lagarde has said that government regulators across the world must take serious actions in regards to cryptocurrencies, while others like JP Morgan’s Jamie Dimon don’t think governments should take it seriously at all — believing it’s nothing more than a Ponzi scheme that will collapse under its own weight.
One thing is for certain: governments will not be able control the growth of ICOs, as they are becoming a very popular method for funding startup companies. Just this year alone more than $3 billion has been raised by startups through ICOs. Why this is becoming popular is that these kinds of sales can raise far more money far quicker than traditional VC funding. It is possible to raise tens of millions in a matter of weeks using ICOs, instead of the months it could take to raise a few million using traditional methods.
Governments can no longer ignore a crypto asset market that has reached $180 billion per year, which is not that much smaller than the world diamond market. A group of cryptocurrency experts, led by Simon Taylor, issued a paper recently to the UK government suggesting that the government and the private sector work together to develop standards and best practices. Similarly, Oliver Bussmann of the Crypto Valley Association has conceived a Crypto Code of Conduct, and Michael Mainelli of Z/Yen Group has written something called the Manifesto for Token Issuers.
If governments work in coordination with FinTech companies, it is possible that cryptocurrencies and their derivatives could become a well regulated alternative asset class. This could lead to opportunities that today we cannot even imagine.
It seems not a question of whether governments will take active roles in the regulation of cryptocurrency markets, but whether they will do it right, as a force for creating and enforcing standards, or as a force for hindering progress.