On Digital/Cryptocurrencies - in the US, China, and more
Last week, U.S. Securities and Exchange Commission Chair Gary Gensler, during a Washington Post interview about cryptocurrencies, said:
“This new technology is very interesting … not only bitcoin ... but this whole distributed ledger technology has been a catalyst for change that, around the globe, central banks and the private sector can enhance our payment systems ...
“At the same time, I don't think technologies last long outside of a social and public policy framework
“These stable coins are acting almost like poker chips … we've got a lot of casinos here in the Wild West and the poker chip are these stable coins ... at the casino gaming tables.
“I think there's just a lot of kind of warning signs and flashing lights ..."
Separately, U.S. Federal Reserve Chair Jerome Powell, during a press conference, said:
"It's really important that the Central Bank maintains a stable currency and payment system for the public's benefit ... We also live in a time of transformational innovation around digital payments
“Where the public's money is concerned, we need to make sure that appropriate regulatory protections are in place, and today they really are not in some cases ...
"We haven't made a decision about the [central bank digital currency], but we will be issuing a discussion paper soon in order to form the basis of this public interaction that we'll have."
NOTE: The Federal Reserve plans to roll out FedNow, an instant payment service, during 2023.
Additionally, the People’s Bank of China made "virtual currencies" illegal, and said:
"In recent years, Bitcoin and other virtual currency transactions are more prevalent, disrupting the economic and financial order, breeding money laundering, illegal fund-raising, fraud, marketing and other illegal and criminal activities, seriously endangering the safety of the people's property.
"Virtual currencies with the characteristics of non-monetary authorities issuing, using encryption, distributed accounts or similar technologies, and being digitally present, such as Bitcoin, Ethernet, etc., including so-called stable coins, do not have the same legal status as fiat currencies and cannot be circulated in the market as currencies.”
OUR TAKE
There are over seventy-five countries exploring digital currencies - and hundreds of cryptocurrencies are in use or development. This environment is a mix of innovation, complexity, confusion, and risk.
To increase the use of these offerings (digital/cryptocurrencies, distributed ledgers, tokens, etc.), they need to be 1) secure 2) easy to use, and 3) cost-effective. Developing the trust of users and regulators is a critical part of the process as well.
While some investors/traders benefit from the price swings of these assets, their use in normal transactions will require lower price volatility.
Expect more innovation, deployments, and adaptation of digital assets and blockchains (in both centralized and distributed forms) to improve the processing, trading, and storing of value around the world.