CEO and Founder of SRAX.
The rise of cryptocurrency has been fast and unpredictable. Bitcoin alone has climbed to record highs this past year. Other coins, like Ether and Litecoin have also risen sharply in the past few months.
Certainly part of the appeal of cryptocurrency is how exciting it can be. As someone who has been intrigued with cryptocurrency since its inception, I’ve observed that no other asset class is as volatile; huge booms and busts are normal, even expected. Additionally, despite the economic downturn in 2020, crypto prices have soared.
This could be, in part, a reflection of the growing desire to decentralize investing and hedge against traditional financial models. Ironically, the very popularity of this growing asset class is leading to a transition that some might see as antithetical to the original purpose of the technology.
Although most people have heard of crypto and blockchain at this point, it can still seem mysterious. How do I buy bitcoin? Do I need special software? How do I spend it? Which coin should I invest in? Is it even legal? Add to that, many traditional wealth managers are still debating whether to recommend cryptocurrencies as a worthwhile addition to investment portfolios.
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JPMorgan’s Jamie Dimon is among those cautious about adopting Bitcoin, saying the government “can regulate whatever they want, when they feel like it… and if [bitcoin] gets bigger and bigger, it will be regulated.” To be fair, he does see blockchain technology becoming a pivotal future technology, allowing people to move money around the globe more cheaply.
Enter specialized exchanges like Coinbase and Diginex. These crypto exchanges see value in blockchain technologies and cryptocurrencies as a new asset class and have made investing in crypto more straightforward. Because these companies want to bring crypto mainstream, working with governments and regulatory bodies is de rigueur.
Diginex is the first such company to have been listed on the NASDAQ, with an initial valuation of $276 million back in October. Its commitment to transparency and working with the SEC has helped provide a framework for more cyber asset companies to do the same and allow investors to feel more assured about cryptocurrency’s long-term growth.
On December 17, Coinbase announced that it had filed for its IPO. The SEC is in the review process, but it seems that approval is a foregone conclusion. Derivatives exchange FTX has even launched pre-IPO futures, with some speculating that a Coinbase IPO could be up to $28 billion.
It seems that we are on the verge of a major shift in the crypto community. As more companies follow in the steps of Diginex and Coinbase, the wild west of cryptocurrency may become tame. Whether they like it or not, these companies are going to have to deal with more regulation as they grow.
The SEC filed an action against Ripple, saying the company’s coin (XRP) had been illegally marketed to retail customers. XRP’s value plummeted, dropping from $0.64 to $0.30 within a week. The lawsuit against Ripple alleges that it raised $1.3 billion in unregistered securities, and if prosecuted, this could be the end of XRP.
It is clear that crypto companies are being closely monitored, and they will need to work closely with regulatory bodies if they intend to expand their reach. However, that isn’t always easy. The SEC, FTC, IRS and FinCEN all have different opinions about what cryptocurrency is and how to go about regulating it. Additionally, there is no federal stance on crypto, leaving states to decide what (if anything) to regulate.
In fairness, these enforcement bodies have mostly been content to leave well-enough alone. Cryptocurrency isn’t going anywhere. In my opinion, the technology used in blockchain could actually enhance the ability of regulatory agencies to ensure compliance.
So how should companies in the crypto space comport themselves to stay on the Fed’s good side? Carefully.
Companies hoping to list on Wall Street exchanges should act as though they could be brought up on charges at the drop of a hat. The action against Ripple shows us that if a company is operating in a manner that is construed as gray, it can be considered in the wrong.
Creating and enforcing regulations in a constantly shifting space is an ongoing process. The rules today might not be the same next year. However, many companies are on a mission to bring crypto investing to everyone, making the move to democratize their technologies.
In my opinion, a bigger issue that will need to be addressed if crypto is to go mainstream is ease of use. The technological savvy needed to confidently buy and sell crypto is a big enough barrier to entry that it prevents the layman from getting started. Many companies are trying to make it easier, but the average person is still intimidated by the process. It doesn’t help that the culture surrounding crypto can be a turn off to some.
All these things taken into account, I still think that cryptocurrencies and blockchain technology are going to continue to grow at a breakneck pace. The technology is too attractive, the money too great and the thought of a decentralized currency too romantic. Does this mean that your grandma might soon be building nodes and trading Ether? Only time will tell.