Extreme price volatility alone isn’t the most defining aspect of blockchain-based digital currencies, which we usually refer to as cryptocurrencies. One aspect often overlooked by retail investors is the conflicting views of governments, regulatory bodies and private players on cryptocurrencies. No two countries or regulators seem to have an identical viewpoint on cryptos.
Developed countries have near-consensus – Cryptos are risky
Almost every high-ranking official and politician either vehemently opposes the rise of cryptocurrency investment or maintains a cautious silence. Senator Elizabeth Warren is a vocal critic of cryptos, and in the Senate hearing titled ‘Cryptocurrencies: What are they good for’, she spoke about the systemic risk of the space on the broader US economy.
SEC Chair Gary Gensler took a balanced approach when he spoke about cryptocurrencies at the Aspen Security Forum. Janet Yellen ripped into ‘extremely inefficient and volatile’ cryptos just a month after she took over as the Treasury Secretary.
Contradictory stance in emerging economies
Emerging economies matter more to investors than developed ones. Foreign institutional investors have been bullish on China and India to find an alternative to developed economies where growth has slowed.
China became the first major economy to outlaw cryptocurrencies. The People’s Bank of China has declared all crypto-related activities ‘illegal financial activities’. This effectively makes it a criminal offence in China to hold or trade or mine cryptos. Elsewhere, they remain unregulated but not unlawful.
Contrary to this, India has called a meeting of stakeholders to deliberate on cryptocurrencies’ opportunities and challenges. The Reserve Bank of India had banned crypto services offered by banks in 2018, a decision that the country’s Supreme Court upturned in 2020. The country’s finance ministry is also looking at ways to bring crypto trading under the tax ambit, and a bill in this regard may be presented soon.
In Indonesia, the country with the largest Muslim population, the leading religious council has called out cryptos as ‘haram’. In Brazil – a member of the BRICS grouping – a congressman has proposed a bill to legalize Bitcoin.
Multi-lateral meet on cryptocurrencies
The contradictory stance of various governments and regulatory authorities may confuse crypto investors, especially in the retail space. Any hostile announcement on cryptos by a specific economy deals a blow to the prices of crypto assets such as Bitcoin, which grabs the lion’s share of news headlines.
This makes a convincing case for a multi-lateral meet of both developed and emerging economies to find common ground. Trillions of dollars are locked in crypto assets, and any major upheaval can spill over into the wider financial world.
These contrasting developments in the cryptocurrency investment space can be daunting for retail investors, who often base decisions on market tailwinds. Much of the bull run in the crypto space was powered by retail investors in 2020 and 2021. Any widespread negative sentiment among this class might lead to an impulsive and heavy outflow of funds, and thereby a big correction in cryptos’ market value.