Crypto markets are largely unregulated; the frontier has always outpaced the law. In order for the asset class to grow beyond the 1.5% of the world population that has invested in and uses it now, the general public needs to gain trust that the asset class is safe to invest in.
Investment of capital tends to flow where there is safety. This often means safety in the form of the rule of law, regulated markets, and sound government. To illustrate this, I’m going to give you an example by bringing you back to Europe in the 18th century.
Note: the following example borrows heavily from Yuval Harari’s book Sapiens: A Brief History of Humankind.
Imagine that you and your brother [let’s call him Fred] come from a solid family of Dutch financiers, and it’s mid-18th century Europe. Your father is looking to expand business- so your dad gives you and your cousin each 10,000 silver coins and orders you to open a bank branch in Rome and your cousin Fred to open a branch in London. Your first customer in Rome is a prestigious one- the King of Italy. He takes out a 10,000 silver coin loan from you because he needs money to fight against the Austrian Empire. Your cousin Fred’s first customer in London is a British merchant who wants to invest 10,000 silver coins in land in a New World colony called Virginia, where he’s certain the value of the land will sky rocket. Both loans are to be repaid in full in one year.
That year passes.
The British merchant indeed turned a handsome profit buying and selling the land in Virginia. The debt is repaid in full to your brother Fred. You are not so lucky. While the King of Italy was successful in his war against the Austrian Empire, he is fighting a new war with France to the country’s northwest. He decides financing this war is far more important than repaying any of his debts, including his loan from you. You send letters to the king’s palace to ask some of your courtesan connections to intercede, but nothing happens. Not only have you not earned interest- you didn’t get any of your principal back either.
Things get worse. The Italian King sends a treasury official to your doorstep and orders you to provide another loan of equal amount, or he will bar you from doing any future business in Italy. You ask your father for more capital to make the loan, and he reluctantly agrees. Another 10,000 silver coins disappear into the coffers of the Italian Regency. Meanwhile in London, things are looking bright for Fred. Fred keeps making more and more loans to enterprising merchants, which are repaid promptly and in full. Although, his luck does not hold indefinitely- Fred loaned some money to an East London man who wants to start a pub, but due to excessive crime in London’s East End, people avoid the area and the pub never gains traction or makes any money. Your father is pissed he lost money, and decides to unleash his lawyers on both the King of Italy and the drunken Englishman with the failed pub. You file a suit against the King in Rome and Fred files another in London.
In Italy, the courts and legal system more or less answer to the King, where the judges serve at his pleasure and fear for themselves if they do not give a favorable verdict to him. The Italian courts throw the suit out. Meanwhile in London, the courts are a separate arm of government from the regency, and the court decides to put a lien on the drunken Englishman’s assets until the loan is repaid in full to Fred. Your father learns his lesson- better to do business with merchants than with kings.
Things turn catastrophic for you in Rome. The king desperately needs more money to finance his costly war with France. He’s sure that your father is good for even more silver coins. So he brings trumped up treason charges against you and threatens to jail you if you cannot produce the money for another loan. You can’t; and you’re jailed. Your father reluctantly pays the ransom to free you to the king, and swears never to do business in Italy again- he closes the Rome branch of the bank. Later, he hears that Italian capitalists are smuggling their fortunes out of Italy in fear of them becoming confiscated.
Investment thrives where the rule of law prevails. Unfortunately, the world of blockchain technology has dark spots- you can send one coin (say, Stellar Lumens XLM) to a different type of wallet (say, Ethereum ETH) and lose that money forever because the transaction did not complete. The anonymity of blockchain makes it attractive to hackers and others seeking anonymized ransoms. The aura these things create around crypto are far more damaging to the asset class and movement than the acts themselves. But fiat is used for vice as well. After all, large illicit drug transactions often happen with duffel bags full of US dollars.
It’s my belief that the more the crypto exchanges (Coinbase, Kraken, Binance, Gate.io, etc) become publicly traded companies in the US, the more safety investors will feel investing in a using cryptocurrency. The more laws on the books protecting consumers from blockchain fraud, the better.
There is a difference between regulating a currency and outright banning that currency. Several governments including China and the Phillipines have made stupid short-sighted decisions to ban a technology that they probably feel threatens their fiat currencies and the power that comes with having control over monetary and fiscal policies. Obviously banning crypto is bad for the asset class, and we’ve seen the shocks that can be delivered to the market when actors like China ban bitcoin mining within its borders (a 30%+ decrease in BTC price).
It’s too late now for the US government to instate any ban on cryptocurrency- there is simply too much institutional investment and too many wealthy powerful individuals who hold coins. Each day that passes, the movement becomes less reversible. We’re early to the party- and the masses haven’t yet shown up- but they’re well on their way.