So far, the digital asset industry has largely defied international coordination. Could the sector be destined for a more harmonised regulatory framework in 2020?
Over the past year, the digital asset industry has witnessed improved adoption of cryptoassets among institutional investors.
A survey by Fidelity Digital Assets, published on 10 June 2020, found that as many as 36% of institutional investors in the US and Europe own crypto assets. 80% of the respondents, which included pension funds, family offices, financial advisers, and hedge funds, reported finding the asset class appealing.
Regulatory uncertainty, however, is commonly cited as one of the biggest hurdles barring accredited investors from entering the space. Another recent survey undertaken by Bitwise confirms this.
In January, more than 400 US financial advisers were asked to outline why they hadn’t allocated to Bitcoin – 56% responded that regulatory concerns as a primary issue. When asked about what improvements they’d want to see in the sector, 58% called for better regulation.
At Copper, we find that institutional clients view US regulatory approval of paramount importance due to the long-standing reputation of US securities and commodities markets.
Even though the nation boasts an enormous market for cryptoassets and is home to exchanges including Coinbase, Gemini, Bittrex, Kraken, Binance US, and many others, regulatory changes are being explored, but are yet to be implemented and thus the situation remains uncertain.
The recent news of Hester Peirce being nominated to serve a second term as one of US Securities and Exchange Commission’s (SEC) five commissioners, is being welcomed by the cryptocurrency world. Peirce has been one of the regulators most open to the digital asset class, and her positive remarks about the sector earned her the moniker ‘Crypto Mom’.
In China, the substantial progress the nation has displayed in its CBDC project since President Xi’s recent endorsement, has caused a global stir. Many believe that China’s forthcoming digital Yuan will challenge the dominance of the US dollar.
The country also exhibited its tech prowess with the launch of its Blockchain-based Service Network (BSN) in April – a global infrastructure to help blockchain projects create and run new blockchain applications at a lower cost, thus accelerating the development of a digital economy.
China also recently passed new inheritance law which allows its citizens to pass on their cryptocurrency and other virtual assets to their heirs, and will come into effect on January 1, 2021.
In the EU, the regulation of cryptoassets has so far consisted of a patchwork of national rules, with EU regulation only applying where digital assets fall within existing legislative frameworks.
Pending the outcome of a European Commission consultation and the response to that feedback, it is probable that 2020 will be a vital year for the development of a more cohesive approach to the regulation of digital assets. Especially as it becomes apparent that the world may be facing a crippling economic crisis.
Digital assets in itself are borderless. In this sense, the job of regulating cryptocassets should extend beyond geographical borders. More so than ever, aligned legislation is needed to ensure that the asset class remains innovative, while safeguarding the interests of investors.
With more central banks now globally investigating their own digital currencies and increased pressure on US and EU regulators to tackle private stablecoin initiatives, it will be interesting to monitor these shifting dynamics as we progress further into 2020.