Cryptocurrencies have had an incredible time this year. It’s no longer a question of whether they can gain mainstream acceptance – we’re long since passed that point. Driven by fears of inflation and easy-to-understand trading platforms, cryptocurrencies now are part and parcel of a changed global monetary system. The challenge is how governments (and their regulators) react. Which countries will appreciate the technology that enables cryptocurrencies (and how will they incorporate them into their financial system), and which will instead simply turn up their nose and pretend they don’t exist?
The way we store and record value has long reflected the nature of our economy and trading system. In ancient times, we bartered goods. Then, we used precious-metal coins to store and exchange value. The invention of paper saw a further evolution in reflecting value backed by physical commodities, while fiat currency is a creation of the modern, globalized financial system. Finally, in an age increasingly defined by digital technology, cryptocurrencies, of course, make eminent sense.
There is no shortage of recent events contributing to the mainstreaming of cryptocurrencies this year. Coinbase, the largest crypto exchange in the US, listed its shares on Nasdaq this month. Meanwhile, major financial institutions have announced that they have put more crypto on their balance sheets, as the price of a single bitcoin, the world’s most popular cryptocurrency, rocketed from around $20,000 in December to $65,000 earlier in April. On April 26, it traded around $53,000.
Elon Musk’s electric-vehicle company, Tesla, bought roughly $1.5 billion in bitcoin and announced it would soon allow customers to purchase cars using that cryptocurrency. Dogecoin, which started as a joke based on a meme of a Shiba Inu dog, has gone up 8,100 percent this year. The total value of dogecoins in circulation currently is around $50 billion, more than the market capitalization of the hospitality company, Marriott, or Ford, the carmaker.
While dogecoin and other cryptocurrencies have seen wild price swings recently, the reason for that volatility may in fact soon give rise to greater stability. The steep rise in prices has been because of more people and institutions investing in crypto. But as more and more people and institutions become invested in crypto, the more mature and stable crypto becomes. Bitcoin has swung in the past month between about $50,000 and $65,000 – a difference of 30 percent from the lower value. By any account that is a massive price swing. But given the amount of institutional money pouring into bitcoin, coupled with global interest, the price has been roughly stable within this range. Those who have watched bitcoin evolve over the past 10 years would have expected much greater volatility. In fact, it is reasonable to expect the trading range to eventually narrow.
Still, despite the rise in prominence of crypto, there is no unified government approach toward cryptocurrencies. The Biden administration in the US says it will introduce new regulations for cryptocurrencies – but it remains unclear what they will be. Meanwhile, China, which has strict laws regulating the use of cryptocurrencies, just announced it will launch its own digital currency. Built on similar technology as bitcoin, the digital yuan could prove to be a model for governments worldwide. At the other end of the spectrum, India is mulling laws that will effectively ban cryptocurrencies – part of a larger campaign to curtail the open internet. In short, governments’ response is confused.
On the other hand, financial markets are being stymied. Wall Street jumped on the cryptocurrency bandwagon this month, but it did so without actually trading any crypto. For while participants in the US markets have been hankering for an exchange-traded fund for crypto, the Securities and Exchange Commission still won’t allow this. For all its virtues, Coinbase remains only a proxy – its stock value is closely tied to the direction of prices of popular cryptocurrencies.
One argument that crypto skeptics have used against coins like bitcoin is that on a practical level they are too slow to trade. A transaction on the bitcoin blockchain can take anywhere from 15 minutes to an hour, depending on the volume of transactions. In the real world, no one is going to wait 15 minutes to pay for a cup of coffee. Such arguments are valid, but they fail to acknowledge the fact that crypto is a “meta currency.” You store value in it but you will likely still exchange it into dollars, dirhams, baht and so on to buy your coffee.
Or to transfer funds. Let me provide a personal example. I regularly remit money from the US to South Africa, where my wife and I live. In the past, this would require calling my American bank, paying hefty fees and waiting a couple of days for the money to arrive. Now, I purchase stable cryptocurrencies that are pegged to the price of the US dollar and thus don’t have price volatility like bitcoin. There are many so-called “stable coins”; I use one called USD coin. It takes a second to buy any amount of stable coins on my crypto exchange. Then, I send them to my wife’s crypto wallet in South Africa. The whole process takes just minutes and the fees are normally less than $2. Moreover, I can do it all on my phone with a couple of taps.
The recent announcement that the Canadian digital asset management firm, 3iQ, will list a bitcoin fund on Nasdaq Dubai is another step in the right direction. First, it demonstrates that the UAE is lowering its resistance to crypto and embracing the technology for what it is: an integral part of the future of finance. Next, the Dubai listing follows the fund’s listing on the Toronto Stock Exchange last year, and may lead to other listings in Singapore, Taiwan, Sweden and the US, potentially allowing for 24-hour trading in the fund and thus greater price discovery.
To paraphrase the Nobel prize laureate, Bob Dylan, governments should get out of the way of cryptocurrencies if they can’t lend a hand – for the times, they are truly a-changin’.
Joseph Dana is the senior editor of Exponential View, a weekly newsletter about technology and its impact on society. He was formerly the editor-in-chief of emerge85, a lab exploring change in emerging markets and its global impact.