In the world of magical internet money, tokens, and blockchain, volatility reigns supreme.
According to data from CoinMarketcap, the cumulative value of the 1,469 crypto assets it tracks declined 10.4 percent, from $546.6 billion to $489.6 billion in the last 24 hours. (For reference, total market value hit all-time highs in early January, just shy of $830 billion.)
At time of writing, bitcoin prices are off 7.8 percent from 24 hours ago, and down 24.2 percent from 7 days ago. Ethereum, ripple, litecoin, bitcoin cash, and hundreds of others in the ballooning asset class experienced similar declines.
Many believe these declines can be attributed to fears over regulation.
Cryptocurrency enthusiasts say that a main benefit of the technology is immunity to bans and other forms of state-imposed regulation. But governments do have the ability to regulate and oversee the exchanges where people (and robots) trade government-issued currency for blockchain assets.
Over the past week or so, Chinese, South Korean, and European Union governments have made moves to impose new cryptocurrency regulations or enhance old ones. And although members of the self-styled cryptocurrency “community” are likely to dismiss the impact of new rules, it nonetheless weighs on the market.
What follows is a quick review of the new regulations being proposed, starting with South Korea.
A lack of clarity characterizes South Korean government messaging about its regulatory plans. At the end of 2017 it sounded like the government intended to shutter crypto exchanges, but new regulations announced Monday suggest that a blanket shutdown is less likely.
Instead, as South Korean media outlet Yonhap News reported, the government intends to collect up to 24.4 percent of cryptocurrency exchange profit, the same tax rates all South Korean corporations pay if they generate over 20 billion won ($18.7 million, in US Dollars) in annual revenue. So, on the one hand, it’s in line with current policy.
However, the tax is retroactive, applying to income from 2018 and 2017. Cryptocurrency exchange operators are required to pay their 22 percent corporate tax bills by the end of March, and the 2.4 percent local income tax bill by the end of April, according to a government statement provided to Yonhap.
Prior to today’s tax announcement, government authorities said yesterday that crypto exchanges will be required to share individual user records with South Korean banks in a potential move to tax transactions.
According to Yonhap reporting from earlier this month, the government enacted new requirements, such as requiring traders to register accounts under their real names.
In September 2017, the Chinese government imposed a ban on initial coin offerings (ICOs), contributing to a slowdown in the market. According to CoinDesk‘s translation of the original announcement, regulation also extended to exchanges that facilitated trade in crypto tokens.
Also, early this month, Bloomberg reported that Chinese regulators announced a set of proposals to discourage bitcoin and other cryptocurrency mining due to high power consumption. As reporting from Bloomberg‘s Gadfly blog explains, China is home to some of the largest bitcoin mining pools and mining operations in the world.
Last week, France and Germany announced plans to present a joint proposal to regulate and assess the risks presented by bitcoin and other cryptocurrencies at the next G20 summit, which will be hosted in March in Argentina.
According to Bloomberg political coverage from December, Italy’s finance minister is also interested in crypto regulation. At the end of 2017, EU regulators expanded anti-money laundering (AML) rules to include crypto exchanges and digital wallet providers, compelling them to follow the same AML compliance rules as banks.
What This All Means
Some of cryptocurrency’s greatest strengths – pseudonymity, a degree of decentralization, and independence from trusted third parties like banks and central governments – have also made it a favored medium for money laundering, tax evasion, and other financial crimes.
Its attractiveness to speculators, enhanced by a frothy market and “fear of missing out” on the next big thing, has led many to take advantage of new and seasoned investors alike. A report from professional services firm Ernst & Young, the key details of which were covered by Reuters, finds that over ten percent of capital raised in ICOs has been lost to fraud, theft, and other malfeasance.
These factors, combined with a desire to encourage the general public to avoid plunging lots of savings (or worse, debt) into such highly volatile assets, are pushing governments to regulate cryptocurrencies. Whether this rolls off the collective backs of crypto traders is uncertain. But recent history suggests that investors have short memories when it comes to bad news.
This being said, it’s important to remember that past performance has little bearing on future returns.