The Horse Is Out of the Barn
I come to today’s dispatch by way of a reader named Patrick.
Patrick asked what might just be one of the most relevant questions today in crypto. Take it away, Patrick:
I’ve read your views on bitcoin and crypto in general and agree with much of what you say. However, I see the biggest risk to crypto, and BTC in particular, being the regulators, particularly in the USA and the EU. If crypto values continue increasing, I’d be concerned that big government will shut them down on the grounds they’re competing with their own currencies. It would be good if you could write an article on this…
This is a topic I addressed in a recent edition of our Weekly Digest, but I wanted to expand on it here, because to be frank, I’m with Patrick.
This is a concern I, too, share. Will Big Government step in and destroy crypto?
It’s certainly within the realms of possibility because crypto has the means to take away what government covets most: power.
Crypto gives government something else in return: information.
And, ultimately, information is a means to greater power.
For that reason, I don’t see governments in the U.S. and EU banning crypto. I see them regulating it in some fashion. I see government and crypto coming together to work on a new, modern set of rules and regulations that will allow crypto to exist and thrive.
I say this because the horse is out of the barn, to use a very tired cliché.
- Nearly $100 billion is invested in decentralized finance, or DeFi.
- Financial-services companies including Mastercard, Visa, and others have invested tens of millions of dollars creating and launching crypto services that Main Street banks are now using to allow ordinary citizens to buy, sell, and save in crypto as easily as they save in a certificate of deposit.
- Untold millions of consumer dollars are now invested in crypto-specific IRA and 401(k) accounts.
- Brokerage firms from Robinhood to Interactive Brokers have taken in untold millions of investor dollars held directly in crypto.
- Venmo and PayPal among others have taken in tens of millions of dollars in consumer deposits held in crypto.
- Some of America’s largest life insurance companies have, combined, more than $100 million worth of crypto on their balance sheets.
- More than $10 billion is invested right now in crypto-based exchange-traded funds.
- The EU is piloting a project known as Self-Sovereign Identity, a decentralized approach to giving people control of their digital identities and data.
- And there are companies all across America that have invested in crypto, or are working on new crypto services they will roll out to businesses and consumers.
I could keep going, but you get the idea.
Those datapoints tell me that:
- If government tomorrow said all crypto is forever banned, the loss of corporate and consumer wealth would be enormous. The backlash would be explosive. The impacts would be felt in the economy as jobs, companies, and hundreds of billions of dollars simply vanished.
- Government sees the value in crypto and the blockchain.
Banning crypto would be killing a golden-goose technology that government itself can/will benefit from.
And here’s the thing, even if it got banned by the U.S. and EU…crypto would still survive.
There are countries around the world that would be all too happy to host crypto-tech companies, such as, say, El Salvador (which recently adopted bitcoin as legal tender).
The U.S. and the EU could try to make it illegal for its citizens to deal in crypto, but so long as the internet is turned on, and people have access to VPNs and the TOR browser and other ways to move about the internet in private, crypto will continue to exist.
At what price?
Ultimately, the question of “Will government ban crypto” comes down to this: Much of the crypto that exists isn’t monetary crypto like, say, bitcoin. It’s crypto with a commercial purpose.
It’s crypto such as VeChain (used in supply-chain management); Chainlink (connecting real-world data to the blockchain to feed the emerging world of “smart contracts”); Ethereum and Cardano (where smart contracts will primarily exist); Chiliz, Enjin, or some/many other non-fungible tokens (crypto that will be used for everything from personal and voter ID, to healthcare info, and ticketing for all sorts of events and travel). By the way, those aren’t necessarily recommendations, just examples to make my point.
Honestly, I cannot see government banning these sorts of crypto. They’re technological advancements that improve safety, quality of life, efficiency, and reduce costs. In many ways, they benefit government.
Right now, of course, government—particularly in America—is running scared because most politicians (I’m looking at you, Elizabeth Warren) don’t understand crypto.
Government, per usual, is late to the game and trying to catch up, and threats tend to be the go-to method of slowing crypto’s roll. (By the way, crypto has survived 24 versions of Chinese bans in the last dozen years, including the most recent last week.)
There will come a point where government and the cryptoconomy come together to fashion a set of regs that everyone is generally comfortable with. At that point, crypto will be fully integrated into our world.
But as I always say…the ride from here to there will be nauseating at times. Violent in its swings. You have to be prepared for that, and willing to look at temporary paper losses with a big dose of dispassion, knowing that crypto has an amazingly bright—and profitable—future.
Otherwise, stay out of crypto for your own financial sanity.