Crypto’s Last Week
This edition of “Crypto’s Last Week” accounts for the most notable, and crypto-related — institutional, investment, and regulatory — news published between Saturday, September 5, and Friday, September 11.
There has been a recent push by lawmakers in the U.S. Congress with the “American COMPETE Act” and “Digital Taxonomy Act” to avoid being a technologically advanced country with a delayed response to the latest high-tech tool that has already shown a great number of improvements and efficient ways to modify the inner workings of various markets on a global scale. We’ve seen the effects of blockchain technology, digital assets, and digital currencies in the primary sector, such as the gold mining industry, in the secondary sector, for instance in the supply chains of hundreds or even millions of products, in the tertiary sector for example in the financial services industries, and so on.
Having the U.S. congress explicitly establish a regulatory framework would bring the country back as a serious contender to promote the development of blockchain technology within its markets, following the European Union’s publicly positive stance at the beginning of 2020 as well as China’s inclusion of blockchain as a critical component of their 13th 5-year plan (2016–2020) and the explosive growth of blockchain-based solutions in both public and private sectors within the Asian giant.
Additionally, it is important to highlight that even though lawmakers in the U.S.A. have yet to clarify their position on blockchain technology and cryptocurrencies, as of 2019, 32 states have introduced laws promoting blockchain and in some cases cryptocurrencies such as bitcoin, while others have created task forces to further understand the underlying benefits and risks of this technology. Most importantly, the regulatory lead has been taken by individual agencies such as the Department of Treasury, Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), Internal Revenue Service (IRS), Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN), creating a mid-level set of rules and regulations that frame the blockchain and most specifically the cryptocurrency markets with all its bolts and gears for an optimal balance between security and technological advancement.
The important shift in investment approaches, according to the generation that is acting has, is, and will be a great prediction tool to analyze markets and the future progress in certain areas of any economy. The world has seen the important influence of the “Boomer” generation (1946–1964) in markets and consumption trends for years with almost 70% of disposable income in the U.S. and having among their ranks a majority of lawmakers with an average age of 57.8 for house members and 61.8 for senators, among the oldest in U.S. history. This generation has had a major focus on stock allocation, with 80% fully investing savings in the securities markets and barely any considering cryptocurrencies as a viable option.
The transition from “Boomers” to the “Gen X” group (1965–1980) has had a profound influence on an investment culture that lived and fueled the latest technological revolution which includes the internet and mobile phones among other important technological advances. The “Gen X” investment culture is also mostly focused in the securities markets, but having lived through all three of the latest market crashes (2000, 2008, 2020) if not correctly positioned, they may have had small returns overall. With this last generation, we can see an increase in the number of “crypto bulls” since they account for a large percentage of the leadership that has financially backed up the crypto movement. These previously mentioned generations would rather have gold as a safe haven since they have both lived through the gold boom and have seen its value and use case “talk for itself.”
Lastly, the “Millennials” generation or “Gen Y” (1981–2000), which is between college and the prime productive years of their lives and most importantly a 12% larger generation than that of the boomers, has been growing in a technologically advanced society where the internet is a normal part of life and investment is seen more optimistically than the older generations, in hand with a tech-focused and socially responsible investment strategy. The combination of both these aspects of investment has a very clear middle ground, cryptocurrencies. This native tech asset promotes social equality and environmental protection, while gold is neither technologically advanced nor environmentally conscious.
2020 has been a year of constant blockchain and digital currency announcements with a positive tone originating from financial institutions. The latest statement emerging from what is considered the largest bank in terms of assets — the Industrial and Commercial Bank of China (ICBC) — regarding the use of blockchain technology as a part of their plans to expedite operational efficiency by applying said technology in locations around China including Nanjing City and Yunnan Province. The application of blockchain to advance operational efficiency is intended to cover areas such as government demolitions and relocations, social welfare employment, and charitable initiatives among others.
Interestingly this announcement comes months after the Agricultural Bank of China — considered one of China’s big four state banks — revealed its involvement in the digital yuan’s pilot program in regions such as Shenzhen, Xiong’an, and Chengdu. These actions can be translated into a gradual but vertical integration of blockchain and digital currencies in the Chinese economy and services market with the noteworthy inclusion of companies such as Huawei and Tencent among the 22 companies involved in the development of the Blockchain-based Service Network specifically aimed at integrating over 30 to 40 public blockchain networks to offer a secure sandbox-like environment that will allow small and medium enterprises to build and deploy blockchain-based solutions. Until July 2020 it has registered 6,000 enterprises and individuals to the network.
As of January 2020, ICBC is part of the 414 banking organizations that have publicly acknowledged the use or future use of blockchain internally, usually finding top players in each country or region, having encouraging experience with this technology.
The combination of this overall acceptance within the finance, commerce, and governmental agencies — over 70% of central banks are exploring the use of Central Bank Digital Currencies (CBDC) — of blockchain and digital currencies is a powerful premonition of what the next decades of technological evolution will bring or be related to.
The results of recent reports and cryptocurrency-related hacks have brought a great deal of clarity to the industry regarding the comparison of crypto or cash as a tool to conceal or avoid authorities from uncovering the tracks of criminals evading anti-money laundering (AML) or financial fraud mechanisms. In the past months not only have the perpetrators of hacks demanding bitcoin (BTC) been promptly apprehended — see: Twitter hack: US and UK teens arrested over breach of celebrity accounts — but there have been reports emerging from both Mexico’s Financial Intelligence Unit and most recently the Society for Worldwide Interbank Financial Telecommunication (SWIFT) in which both organizations have defined cash as the primary concern and have categorized crypto as an emerging threat.
Furthermore, The United Nation’s Office on Drugs and Crime has stated that “around $800 billion to $2 trillion, or the equivalent of between 2% to 5% of global GDP, is laundered through cash channels each year.” Parallel to these results, according to “The Chainalysis 2020 Crypto Crime Report” throughout 2019 over $2.8 billion worth of BTC was sent from criminal entities to exchanges. It is also important to note that research has shown that only 1.1% of BTC volume is deemed to be illicit, creating a clear contrast between assets and their use for criminal activities.
Finally, the advanced tools being used at the moment for forensic analysis by institutions involved in the financial services industry and by national or regional regulators have proved to be a state of the art instruments that follow traces and locate wallets where funds obtained criminally have been “stashed”, proving yet again the effectiveness of blockchain and cryptocurrencies to decrease AML weaknesses in the future while improving latency and transaction efficiency for the global network-dependent in a days-long process with high fees and outdated security requirements.
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