Millennium Post

Cryptocurrency dilemma

Following Elon Musk's bombastic announcement of Tesla buying USD 1.5 billion worth of Bitcoin, there is a general consensus that cryptocurrencies are now moving swiftly towards full-on mainstream usage. Not too long after Musk made this announcement, financial services giant Mastercard announced that it would start accepting select cryptocurrencies for transactions on its platform. Cryptocurrencies that want to be added to the Mastercard platform would have to tighten their compliance measures. America's oldest banking firm BNY Mellon has also decided to leap into cryptocurrencies based on growing demand and improved regulatory framework. The firm has formed a new unit to help its clients hold, transfer and issue digital assets. Another sign of mainstream Wallstreet interest in using cryptocurrency was last month's announcement that Blackrock, the world's largest asset manager is now set to invest in cryptocurrencies as well. Its CEO had also expressed the possibility that Bitcoin and other similar cryptocurrencies could form the basis of a new digital economy that could altogether replace or at the very least largely replace the current financial system. But, even as private interests are showing growing acceptance regarding the possibility of using cryptocurrencies, governments have been more guarded. The biggest persistent fear is that cryptocurrencies create greater avenues for money laundering and financing of criminal activities. This is not simply a 'what-if' scenario. A recent Reuters report showed that 270 crypto addresses last year were responsible for laundering around USD 1.3 billion in dirty funds. This is nowhere near a full assessment of the crime that involves the use of cryptocurrencies as information regarding such incidences is still relatively sparse. The inherent decentralisation and anonymity of cryptocurrencies make them an attractive option for criminal elements to make use of. This is precisely why governments are waking up to the need for applying a regulatory framework for cryptocurrencies to operate within. US Treasury Janet Yellen has stated that cryptocurrencies have considerable potential if regulated in the right way as they could not only expand access to financial systems but also allow the government to curb the use of black money by organised crime. This is not the only problem for regulators as evidenced by the SEC possibly having to investigate Elon Musk's Bitcoin purchase. The problem is that Elon Musk had previously been tweeting for quite some time in support of Bitcoin with every mention spiking-up the price for Bitcoin. When he announced that Tesla had bought USD 1.5 billion worth of Bitcoin, Musk did not announce just when this purchase was made. Depending on the timing, Musk could be held responsible for manipulating the value of Bitcoins in his favour. To be certain, this type of social media influence on finance is not a new thing now. Many have already compared what Musk has done with Bitcoin to what happened with GameStop. Just as was the case with the GameStop fiasco, it is unclear just how Elon Musk can be punished in this case because there isn't an exact framework to follow in such cases of non-standard market manipulation. But there is certainly a clear and present need to establish the necessary framework as such incidents are not likely to be isolated ones like Bitcoin and other cryptocurrencies move towards mainstream use. Given all these challenges and possible pitfalls, governments such as that of India may move to ban cryptocurrencies in the short term. India has indicated that it is looking into coming up with its government-regulated cryptocurrencies. But there is more evidence to support that governments may look towards a path of regulation rather than outright rejection. Much like many other things the government looks to regulate, banning the use of cryptocurrency does not reduce its potential for illicit use. Rather, bring it under a framework promises some level of control while also bringing much-needed stability to a financial system that many say still exists in a bubble that can burst at any time.

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