MORGAN STANLEY SAYS BITCOIN NEEDS REGULATION TO KEEP RISING

Graph source: http://www.barrons.com/articles/blockchains-got-no-killer-app-yet-says-morgan-stanley-even-as-bitcoin-soars-1497377427

On analysis of a privately released whitepaper, Bloomberg reported that investment banking giants, Morgan Stanley, made a divisive claim that Bitcoin needs regulation to continue rising.

Source: Bloomberg

After surging to an all-time high of $3,000, speculation over the potential value of Bitcoin has grown, with some analysts projecting a potential value of $100,000 in the next decade. On the opposite end of the spectrum, analysts at Morgan Stanley have dampened speculation, proposing that regulation is the necessary catalyst required for a Bitcoin Boom.

Bitcoin should be regulated. Bitcoin can never be truly regulated. For the people, by the people.

The discussion over the application of regulation to cryptocurrencies has historically been a deeply contentious, polarising debate and the recent surge in the value of virtual currencies to over $100bn has only fuelled the fire.

Given the decentralised and stateless nature of many cryptocurrencies, is the application of effective regulation possible and is it necessary for the future growth of cryptocurrencies?

THE NEED TO BE REGULATED

In the absence of a central enforcement authority, cryptocurrencies represent an unorthodox, ambiguous financial system that exists in an online ecosystem. It is in this decentralised utopia that unscrupulous individuals can manipulate cryptocurrencies to facilitate their dishonest and corrupt enterprises.

Be it through financial crimes, cyber security, the sale of counterfeit goods and countless other more insidious crimes, there is criminal opportunity.

However, in isolation, cryptocurrencies themselves don’t harbour an escalated risk, just like conventional fiat currencies, cryptocurrencies are predisposed to being usurped for immoral activity. However, unlike fiat currencies, the unregulated ecosystem that cryptocurrencies thrive in, is void of a body vested with powers of prosecution.

Considering this gross lack of deterrent and risk, why wouldn’t organised and opportunistic criminals commandeer cryptocurrencies, who’s going to prosecute them? I am of the opinion that It is through the lack of regulation that cryptocurrencies acquire their element of risk.

So, to a certain extent, I agree with Morgan Stanley. Governments, markets, business’ and most importantly, ordinary people are risk averse. Until that risk is at least deterred, cryptocurrencies don’t stand a chance of going mainstream.

CAN CRYPTOCURRENCIES BE REGULATED

Yes. No. Well, the spending of a consumer can rarely be regulated. So, what or whom are going to be regulated?

Regulating exchanges and providers

Until cryptocurrencies are mainstream and universally used for personal or commercial purchases, their immediate value is truly in their ability to be converted into fiat currency.

Thus, regulating exchanges and services providers is the most efficient way to regulate their use. Through the use of Consumer Due Diligence (CDD) Know Your Customer (KYC) and the reporting of suspicious activity, exchanges such asCoinCorner are at the forefront of normalising cryptocurrencies by fettering the ability of criminals to convert cryptocurrency.

Does such regulations stifle the growth of cryptocurrency?

Without a doubt, yes. Regulation operates as a barrier to entry into the market of cryptocurrency exchanges, reducing consumer choice, strengthening monopolies and arguably stagnating research and development.

However, as with any industry, regulation is a necessary evil and ultimately protects consumers whilst further legitimising cryptocurrencies.

THE NEED FOR HELPFUL REGULATION

Regulation need not be regarded as an onerous, restrictive burden upon cryptocurrencies. If correctly applied regulation could be the key to nurturing the development of cryptocurrencies. Similarly, to cryptocurrencies, early internet developers were in a position of legal limbo. If existing legislation was strictly applied, coders and developers could be held liable for the content users uploaded and added to their websites. In the 1990s, Congress passed the Communications Decency Act (CDA) and the Digital Millennium Copyright Act (DMCA). The laws significantly protected developers and detached liability from the actions of their users. Without such legislation, the power of the internet would have been significantly limited and unrecognisable to the tool that has shaped the world be live in today.

To continue its meteoric rise, regulators need to look at cryptocurrencies and blockchain technology in a similar vein. Accepting its flaws and nurturing its potentially revolutionary power.

Today, Governments and legislators are overwhelmingly against or agnostic towards the development of cryptocurrency. The combative attitude of pivotal governments such as the USA has unquestionably stifled the growth and availability of cryptocurrency around the country. Bitcoin exchanges are defined as money transmitters and are thus required to obtain state specific transmission licenses that differ in fee and compliance requirements. Creating a logistical barrier that restricts the access of global exchanges.

INITIAL COIN OFFERINGS (ICO’S) BEGGING FOR REGULATION?

Naturally, todays cryptocurrency market is dramatically different from that of 2009. ICO’S are one of the most dynamic platforms to invest in blockchain projects and start-ups. The Financial Times calls ICOs “unregulated issuances of cryptocoins where investors can raise money in bitcoin or other [cryptocurrencies],”.

ICO’s are essentially identical to the Initial Public Offering (IPO’s) of conventional start-ups, with the exception that IPO’s in the USA are required to register with the U.S Securities and Exchange Commission (SEC). Under which they must submit;

a description of the company’s properties and business;a description of the security to be offered for sale;information about the management of the company; andfinancial statements certified by independent accountants.

For examination.

Unscrupulous companies have employed the use of ICO’s to circumvent inspections and securities regulations. Resulting in inevitable scams in which fraudulent companies have raised astronomical sums of capital with no intention of ever trading or ensuring its investors profit from their investment.

Peter Van Valkenburgh, director of research at crypto-currency advocacy group Coin Centre, expressed his displeasure of ICO’s arguing,

“… What does an organization like the SEC regulate? They regulate IPOs, that’s what they regulate. So, let’s just change one letter and make it a ‘C’ and then it’s OK, right? No.”

As the value of cryptocurrencies increase, the nature of the product itself diversifies. The continued growth of cryptocurrencies into the arenas of fiat currency comes with an unavoidable necessity for regulation.

REGULATION, FOR THE PEOPLE, BY THE PEOPLE

Bitcoin is widely revered as a symbol of financial liberation from central banks and governments. Naturally, there are those within the cryptocurrency community that fundamentally oppose the introduction of external regulation.

As such, we can see an emergence of modern start-ups such as Elliptic that act as a tool to identify potentially criminal activity on the bitcoin blockchain and provide the service to leading bitcoin companies and global law enforcement agencies.

Elliptic are a successful example of the bitcoin community effectively regulating itself and outsourcing the prosecution of those committing recognisable existing crimes to the relevant law enforcement agencies.

SO, WHAT’S NEXT- THE FUTURE

Regulation of decentralised cryptocurrencies are by nature difficult but not impossible. Government officials often fail to sufficiently understand cryptocurrency, view it as a threat and subsequently over regulate it to death. Regulation need be specifically drafted and carefully designed by a range of professionals, internal and external of the cryptocurrency community to protect the core ethos of the technology whilst ensuring cryptocurrency related enterprises are sufficient regulated by existing law.