Despite going on a winning streak from the end of July into the start of August, Bitcoin has cooled off this morning amid the suggestion that a Crypto Tax could be on the way. Part of the reason for the uncertainty around cryptocurrency Tuesday morning is a looming discussion between Gary Gensler, the head of the Security and Exchange Commission, and Paul Vigna of the Wall Street Journal.
The talk will occur during the virtual Aspen Security Forum and is expected to center around the SEC’s current view of cryptocurrency. Earlier this summer, Senator Elizabeth Warren made headlines in the crypto community by suggesting that crypto exchanges should be monitored and treated like securities, as a way to add additional checks to the new standard.
“While demand for cryptocurrencies and the use of cryptocurrency exchanges have sky-rocketed, the lack of common-sense regulations has left ordinary investors at the mercy of manipulators and fraudsters,” Warren said in an open letter to Gensler last month.
“These regulatory gaps endanger consumers and investors and undermine the safety of our financial markets. The SEC must use its full authority to address these risks, and Congress must also step up to close these regulatory gaps.”
The SEC’s Stance
Gensler has gone on record before stating that he’s actually very “intrigued” by the technology behind cryptocurrency. He has told reporters that he has personally studied blockchain technology and is excited about its potential applications in the future. However, he also has stated that he’s hardly sympathetic to Bitcoin, and will likely not go easy on crypto when the time comes for the SEC to regulate it.
“While I’m neutral on the technology, even intrigued—I spent three years teaching it, leaning into it—I’m not neutral about investor protection,” Gensler told reporters. This explicit statement has made some crypto enthusiasts nervous about the prospect of the SEC introducing sweeping changes by regulating cryptocurrency harshly.
Another cause for concern among the crypto community is the name of the summit: ”The View from the SEC: Cryptocurrencies and National Security” hardly inspires confidence that Gensler will have warm and kind things to say about cryptocurrency.
The International Monetary Fund has also been harsh on Crypto recently. Last month, the IMF issued a warning against countries accepting cryptocurrency as legal tender. At the time, they wrote in a blog post: “As national currency, cryptoassets — including bitcoin — come with substantial risks to macro-financial stability, financial integrity, consumer protection, and the environment.”
A major concern of the IMF has been the potential for criminal activity that cryptocurrency—which they insist on calling “cryptoassets”—can bring about. “… [C]ryptoassets can be used to launder ill-gotten money, fund terrorism, and evade taxes,” the IMF insisted. “This could pose risks to a country’s financial system, fiscal balance, and relationships with foreign countries and correspondent banks.”
Many onlookers feel as though the blog post was a direct reference to El Salvador, as the country is preparing to adopt Bitcoin as a form of legal tender. The country’s government agreed to such a measure back in June, with president Nayib Bukele championing the currency as a decentralized store of value that couldn’t be manipulated by foreign powers. El Salvador has gotten little support for the measure from any international financial agencies.
The World Bank issued a statement to Reuters in June, stating “While the government did approach us for assistance on bitcoin, this is not something the World Bank can support given the environmental and transparency shortcomings.”
Bitcoin Slips in Response to Pressure
Bitcoin was on a major winning streak going into Monday, trading close to $42,000 per coin. However, through the day, it slipped back under $40,000, seemingly sensitive to potential regulatory pressures. By Tuesday morning, the time of this writing, the currency was trading just over $38,000 per coin, an eye-opening loss of nearly $4,000 in value over just 24 hours.
This fundamental instability is a major point against Bitcoin as a functional currency. Ideal currencies don’t change in value over time. Even the most volatile currencies in the world don’t experience the wild swings like the value of cryptocurrencies, making investors hesitant to take big gambles on them.
The Case Against Crypto
Cryptocurrency has a lot of factors against it. For one thing, it’s extremely bad for the environment under the current “proof of work” model. For another, it opens the door for black market transactions and fraud that could destabilize entire economic models. And, countries are especially wary of how volatile the currency is, making it less than ideal as a national standard.
But perhaps the biggest hurdle looming for crypto is that it needs to prove its worth over the forms of currency we already have. Is crypto really a revolution, or is it just the currency we already had, now stored on servers instead of in vaults?