By Daniel Shin
By 2022, there will be a tax levied by the Korean government on any income from cryptocurrency trading.Some said that it is too early or too much with a proposed 20 percent tax rate because financial regulators have not come up with rules to protect investors yet.There is no unified or consistent regulatory framework on crypto currencies and assets while there is a rapidly growing number of cryptocurrency investors and NFT (non-fungible token) backed asset holders.
Cryptocurrencies are one of the biggest trends as everyone talks about them with some degree of knowledge.Despite the fact that many corporations and governments around the world have adopted cryptocurrencies in some form, cryptocurrencies remain one of the least-regulated areas of finance.Sky is the only limit for a skyrocketing coin price even if it is extremely volatile.
Whether it has been artificially inflated or not, a single Bitcoin could buy a Tesla, as the company now accepts cryptocurrencies as payment.Tesla recently revealed that they have had a positive impact on the company’s profitability as sales of Bitcoin during the first quarter of 2021 contributed to a reduction in operating expenses.
But some argue that key operations and the financial condition of Tesla were already somewhat lost in translation from a lack of clarity on this volatile asset with limited visibility.
Tesla made more money selling environmental regulatory credits and Bitcoin than cars, some industry analysts pointed out with sarcasm.
The Securities and Exchange Commission (SEC) hasn’t engaged in any investigation yet, but it may take a hard look at Bitcoin transactions if Tesla continues to try to make every quarter turn into the black using Bitcoin.
It was a good proof of concept, though, for Tesla and cryptocurrency investors, for cryptocurrencies to be liquid at the scale that Tesla envisioned.Tesla will continue to allow customers to make deposits and full payments for its cars with cryptocurrencies; and apparently will also hold on to the Bitcoins it acquired in February this year.
Cryptocurrencies tend to shine in emerging economies.
Argentina, for example, is a regional leader in Latin America in the adoption of cryptocurrencies due to economic instability and restrictions on foreign exchange.Cryptocurrencies are totally legal in Argentina even if there are many new regulations on the radar such as taxation and the prevention of money laundering.
New regulations are not yet fully implemented, with no specific regulation on the sale of cryptocurrencies under securities or investment laws in Argentina.Cryptocurrencies won’t be classified as securities anyways due to the lack of a central issuing authority.
Nigeria is now the third largest Bitcoin market after the United States and Russia.A loss of faith in more traditional forms of investment and the local currency is attracting millions of Nigerians to cryptocurrencies.As reported, the Central Bank of Nigeria devalued the country’s currency by more than 24 percent last year, and it will likely fall again this year.
Many bankers agree that cryptocurrencies are an evolution of finance because the cost of transactions is nearly zero according to a panel discussion organized by Salzburg Global Seminar on post-pandemic leadership for financial services.The panel deeply discussed the need for new policies to govern the intersection of finance and technology.One panelist pointed that the regulators are slow to adapt as new regulations take time for public consensus.
This echoed the sentiment of U.S.Federal Reserve Chairman Jerome Powell who at the Economic Club of New York recently compared cryptocurrencies to gold, describing both as vehicles for speculation.
Powell said that human beings have given gold a special value that it does not have as an industrial metal used for thousands of years.
Coincidentally, this comment came out on the same date that Coinbase, a major trading exchange for Bitcoin and other cryptocurrencies, went going public on the NASDAQ.This comment provides common ground for regulators in advanced countries such as the United States.Another panelist at Salzburg Global Seminar added that that is why emerging markets are only hope for cryptocurrencies
Private sector innovation using blockchain tech and cryptocurrencies is moving much faster than the public sector.For example, Facebook could literally create its own bank that would act as a primary financial institution for its users.
Facebook does have the capacity to build systems that could be customized to each country addressing different regulatory requirements while driving down costs according to the Libra White Paper.
Once those who have successfully won public trust manage to establish a universal platform where users are already deeply interconnected, then, it all stakeholders would simply have to link to it.How to build the internet of money is the ambition behind Libra, Facebook’s cryptocurrency, a crypto coin and payment infrastructure with the vision to empower billions of people.A borderless payment system also fits perfectly well with Zuckerberg’s vision on messaging even if Libra has seen a huge regulatory backlash since it was officially made public in 2019.
The future outlook for cryptocurrencies is still vague.The private sector does see great potential while the public sector so far sees nothing but risk.
Especially, large tech firms have been encroaching on the domain of financial service firms with varying business motivations.It is not yet certain who the clear winner will be.
Perhaps, cryptocurrencies are the least regulated area, but also an area in which large tech firms may have the least to offer.Some underdogs outperform the gifted.I hope to see more ventures in this space changing the rules of the game and helping to set a new regulatory framework for a new digital ecosystem.
Daniel Shin is a venture capitalist and senior luxury fashion executive, overseeing corporate development at MCM, a German luxury brand.
He also teaches at Korea University.
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