Who Will Win The Cryptocurrency Race First: Private vs. Public Sector?

By 2022, there will be a tax levied by the Korean government on any income from cryptocurrency trading. Some said that it is too early or too much with a proposed 20% tax rate because financial regulators have not come up with rules to protect investors yet. There is no unified or consistent regulatory framework on crypto currencies and assets while there is a rapidly growing number of cryptocurrency investors and NFT (non fungible token) backed asset holders.

Cryptocurrencies are among the one of biggest trends as everyone talks about it with some degree of knowledge. Despite the fact that many corporations and governments around the world have adopted cryptocurrencies in some form, cryptocurrencies remain one of the least-regulated areas of finance. Sky is the only limit for a skyrocketing coin price even if it is extremely volatile.  

Whether it has been artificially inflated or not, a single Bitcoin could buy a Tesla. Tesla now accepts cryptocurrencies as payment for a car. Tesla recently revealed that bitcoin made a positive impact to the company’s profitability from sales of Bitcoin during the Q1 2021 as if it contributed a reduction in operating expenses. 

But some argued that key operations and financial conditions of Tesla were already somewhat lost in translation from a lack of clarity of this volatile asset with limited visibility. Tesla made more money selling environmental regulatory credits and Bitcoin than cars as some industry analysts said with sarcasm. The Securities and Exchange Commission (SEC)  hasn’t been engaged in any probe yet but it could give a hard look at Bitcoin transactions if Tesla continues to try to make every quarter turn into the black with Bitcoin. 

It was a good proof of concept, though, for Tesla and cryptocurrency investors that cryptocurrencies can be liquid at the scale that Tesla has envisioned. Tesla will continue to allow customers to make deposits and full payments for its cars with cryptocurrencies. Apparently, Tesla will also hold on to the rest of Bitcoins that it acquired in February this year. 

Cryptocurrencies tend to shine in emerging economies. Argentina, for example, is a regional leader in Latin America in the adoption of cryptocurrencies due to economic instability and restrictions on foreign exchange. Cryptocurrencies are totally legal in Argentina even if there are many new regulations in the radar such as taxation and prevention of money laundering on cryptocurrencies. New regulations are not yet fully implemented. There is no specific regulation on the sale of cryptocurrencies under securities laws or investment laws in Argentina. Cryptocurrencies won’t be classified as securities anyways due to the lack of a central issuing authority.  

Nigeria is now the third largest Bitcoin market after the United States and Russia. A loss of faith in more traditional forms of investment and the currency is the trigger attracting millions of Nigerians to cryptocurrencies. As reported, the Central Bank of Nigeria devalued the currency by more than 24% last year and likely it would fall again this year.  

Many bankers agree cryptocurrency as an evolution of finance because the cost of transaction is nearly zero according to the panel discussion organized by Salzburg Global Seminar on post-pandemic leadership for financial services. Panel deeply discussed the need for new policies to govern the intersection of finance and tech. One panelist pointed that the regulators are slow to adapt as new regulations take time for public consensus. 

It is echoing the sentiment of the U.S. Federal Reserve Chairman, Jerome Powell, who recently said at the Economic Club of New York on cryptocurrencies by comparing them to gold and describing both as vehicles for speculation. Powell said that human beings have given gold a special value that does not have as an industrial metal for thousands of years. Coincidentally, this comment came out on the same date when Coinbase, a major trading exchange for Bitcoin and other cryptocurrencies, was going public on the NASDAQ. This comment provides common ground for regulators in advanced countries like the United States. Another panelist at Salzburg Global Seminar added that that is why emerging markets are only hope for cryptocurrencies. 

Private sector innovation using the blockchain and cryptocurrencies is moving much faster than the public sector innovation. For example, Facebook could literally create its own bank that would act as a primary financial institution for its users. Facebook does have capacity to build the systems that can be customized to each nation addressing different regulatory requirements while driving down the costs according to the Libra White Paper. Once those who have successfully won public trust manage to establish the universal platform where users are already deeply interconnected, then, it would make all stakeholders simply link to that. How to build the Internet of money is the ambition behind Facebook’s cryptocurrency, Libra, a crypto coin and payment infrastructure with the vision to empower billions of people. Borderless payment system also fits perfectly well with Zuckerberg’s vision on messaging even if Libra has seen a huge regulatory backfire ever since it was officially publicized in 2019.  

Cryptocurrency’s future outlook is still vague. The private sector does see great potential while the public sector yet sees nothing but risk. Especially, large tech firms have been coming to the domain of financial service firms from varying business motivations. It is not yet certain who the clear winner will be. Perhaps, cryptocurrency is yet the least regulated area, but also the area where large tech firms may have the least to offer. Some underdogs outperform the gifted. I hope to see more ventures in this space changing the rules of the game and helping to set the new regulatory framework for the new digital ecosystem.