How do crypto-assets affect the market, and what are regulators doing about it?
Crypto-Asset Popularity Is on the Rise
Several factors have led to the global surge of crypto transaction globally. These include increasing acceptance of crypto by retailers and retail investors, together with the emergence of products linked to the value of underlying digital assets. In Europe, as reported by the European Central Bank Crypto-Assets Task Force, crypto-asset trading peaked at €650 billion in January 2018, declining to €96 billion one year later. In addition, the Task Force reported that as of January 2019, Bitcoin has become the leading crypto-asset in terms of popularity, market capitalization, and user base.
2018 Industry Concerns Intensify
In 2018, industry concerns arose when the SEC suspended trading in the securities of some companies for issuing false or misleading statements. For instance, it suspended two cryptocurrency-related products because of confusion over the nature of the financial products. In an SEC.gov announcement in 2018, the regulator said: “It appears to the Securities and Exchange Commission (SEC) that there is a lack of current, consistent and accurate information concerning Bitcoin Tracker One and Ether Tracker One, resulting in confusion amongst market participants regarding these financial instruments.”
Placing More Emphasis on Regulating Cryptocurrency
Due to the aforementioned issues, it is important for regulators to monitor the crypto assets phenomenon, raise awareness, and prepare strategies to handle potential challenges that may arise based on market needs. In fact, regulators and advisory groups are already beginning to do so. Drawing attention to the effects of cryptocurrency on financial markets, a European Central Bank Crypto-Assets Task Force whitepaper stated: "Crypto-assets do not currently pose an immediate threat to the financial stability of the euro area. Their combined value is small relative to the financial system, and their linkages with the financial sector are still limited.” This “limited and/or manageable” risk is partly due to the lack of central bank backing, volatility of crypto-assets, and limited use by merchants. Crypto-asset volatility makes it difficult for merchants to accept cryptocurrency as a form of payment. Furthermore, it is interesting to note that Bitcoin is less volatile than other crypto-assets.
U.S. Lawmakers are also calling for clearer cryptocurrency regulations. In April, for example, 21 legislators signed a letter to the Internal Revenue Service requesting tax guidance, according to CoinDesk. In May 2019, responding to the inquiry, the IRS announced it would soon develop and post crypto tax guidance. In a letter to Congressman Tom Emmer (R. – Minnesota), IRS Commissioner Charles P. Rettig wrote: “I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions and have made it a priority of the IRS to issue guidance.” It appears that IRS and legislative attention is a sign that crypto-assets and other virtual currencies will be more commonly accepted, with increased and clarified regulation.
Working in Cryptocurrency
With the rise of cryptocurrency, there is an increased demand for talent among employers, and the professionalization of the space continues to accelerate. For instance, SEC.gov recently posted a job request for a crypto specialist who will utilize his or her expertise to coordinate the Division of Trading and Market's crypto and digital asset securities work. Hiring a cryptocurrency expert is yet another sign of the increasing relevance of crypto-assets in the securities and investment marketplace.
Over time, we believe that cryptocurrency will become more common and ubiquitous, affecting everyone in one way or another.
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