Why some governments are trying to scare people away from using cryptocurrencies
Recent moves by Washington, and specifically by SEC Director Gary Gensler, with respect to the development of cryptocurrencies suggest an attitude that seems to coincide with a classic FUD strategy of creating fear, uncertainty and doubt among users.
After accusing Coinbase and Binance, the two main cryptocurrency exchanges, for unauthorized securities trading, an area that falls under the SEC’s remit, and correctly finding that Binance had breached all kinds of money laundering rules, the regulator’s attitude now seems to be to sit on its hands: it’s not going to dictate specific rules, and instead will try to hobble the development of the ecosystem whenever possible.
Calling a cryptocurrency a security, as opposed to a commodity, may make sense in the context of investments, which could be seen as equivalent to people buying the equivalent shares in a company but without complying with the proper regulations, but it is clearly stupid and meaningless if we are talking about a sufficiently consolidated cryptocurrency such as Bitcoin or Ethereum.
At the same time, control over the activity of these exchanges is increasing: the number of information requests to Coinbase has tripled in the last three years, with the United States issuing half of them, followed by the United Kingdom and Spain. The idea, clearly, is to let people know that they are being monitored, at least, whenever they pass through one of these exchanges (and especially if they are ignorant enough to store their money there).
Meanwhile, intentionally confusing messages such as “abandon the trading of anything that is not bitcoin”, or “anybody who invests in cryptocurrencies should be prepared to lose everything”, as the British regulator has warned, make it clear the risks people are taking, and more importantly that our governments are trying to monitor activity. The United States seems to have intentions to restrict the development of cryptocurrencies, and it now seems the United Kingdom could go the same way.
What’s this push to try to bring cryptocurrencies into the financial fold about? Basically, control. As more and more people choose to believe that the best bet for the future is to redefine money to remove control over it from governments and central banks that are directly responsible for all the disasters we have experienced, from inflation to rate hikes and financial crises, these same governments and central banks are trying to fight back by undermining confidence, seeking to raise entry barriers by creating CBDCs, Central Bank Digital Currencies, which, in practice, simply increase their level of control.
Initially proposed to make some people think this has less risk than cryptocurrencies, “because the government is behind it”, the value proposition of CBDCs is basically to take us all for idiots: now, in addition to being able to change the value of money at will, they can set an expiration date so that we have to spend it before a certain date and thus heat up the economy whenever they want. Crazy.
The reality is that cryptocurrencies cannot be controlled. You can buy them whenever you want, and even if you do it through an exchange subject to KYC (Know Your Customer) rules, making the onboarding process simpler, the fact that you can buy or sell them freely, although this is hardly advisable due to the uncertainty about the stabilization of their value, makes them very difficult to trace. Wallets are repositories that you have installed on your computer or put in a drawer if you want, and they do not tell anyone anything either. Therefore, cryptocurrencies mean the loss of a series of controls that governments and central banks previously had: not only do they cease to be able to issue money when they see fit, but they also have real difficulties in controlling movement. The only possibility for the moment is to treat them as investments and require people to declare them.
In the end, whether the use of cryptocurrencies becomes widespread will depend solely on the number of people who see them as a suitable value proposition: a currency that increases in liquidity as its value discovery process consolidates, but above all, that is not subject to the whims of any central bank or government. Do some cryptocurrencies go down when somebody says something on Twitter? That doesn’t matter, and has nothing to do with the value of that cryptocurrency. Its value depends solely on its level of adoption, and on that, governments can only consider acting as they are doing, trying to generate fear.
Does that mean that cryptocurrencies are a good thing? That depends: firstly, they are neither good nor bad;they are simply a technology that can be put to any number of uses. Secondly, not all cryptocurrencies are the same, and the only ones that have been widely adopted, which ensures their viability and liquidity when the time comes, are Bitcoin and Ethereum, each with very different models but whose survival is beyond doubt. Thirdly, most people have no idea how cryptocurrencies work, simply believing they are a bit dodgy, a gamble, and therefore they are willing to do stupid things. Separating a fool from his money has always been easy, dollars, euros or cryptocurrencies. It doesn’t matter.
As the adoption process continues, with its ups and downs, but generally on an upward trajectory, we will continue to see attempts by governments and central banks to control cryptocurrencies, until they finally realize that it is not possible, and that the rules have simply changed. From dollars that read “in God we trust” to another that makes much more sense: as Adam Davidson said in 2015, “in code we trust”. Let’s take the grubby hands of governments and central banks away from our money, and instead leave it to mathematics; if it’s not in the protocol, it does not exist. Simply put, the future.
(En español, aquí)
