Welcome to State of Crypto, a CoinDesk newsletter looking at the intersection of cryptocurrency and government. I’m your host, Nikhilesh De.
Are governments worrying more about the growth of crypto? Two countries already announced crypto-related bans, though this could be an extension of previous efforts at controlling the space – and their own economies – rather than new initiatives
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In recent weeks, both India and Nigeria have made noises about banning crypto industry participants’ access to the traditional banking sector. This could be a sign of renewed government crackdowns on the space.
Bitcoin and subsequent cryptocurrencies were designed to be censorship-resistant, stateless and a tool of economic freedom. Citizens in Belarus and Nigeria used bitcoin to raise funds for those who lost their jobs or otherwise faced repercussions for protesting against authoritarian regimes. People in other countries use cryptocurrencies as a way of cheaply transferring value across borders.
But the crypto space might not yet be mature enough to actually fulfill those goals – at least, not entirely. Ray Dalio, head of major hedge fund Bridgewater Associates, said government prohibition could have a significant negative impact on cryptocurrency adoption, and we’re indeed seeing governments try to enact or enforce stringent regulation.
The Indian government began considering a bill that would ban private cryptocurrencies late last month, defining “private” as any cryptocurrency that’s not state-backed. The bill, which was introduced to the Lok Sabha, the lower house of the Indian parliament, also suggested that India could launch its own central bank digital currency (CBDC), issued by the Reserve Bank of India (RBI), the nation’s central bank.
There are two details here that stick out to me, The first is that the RBI tried to restrict cryptocurrencies once before, when it told banks they could not provide services to crypto companies in 2018. That ban was later struck down by the nation’s Supreme Court, though RBI vowed to fight the ruling. This new bill, which was also introduced in the Rajya Sabha (the upper house), could be a natural evolution of that policy goal, one that would have the force of law behind it.
The second detail is the Indian government has also tried to control its financial system before. In 2016, the government demonetized the ₹500 and ₹1,000 notes, some 86% of the circulating currency, nominally in an effort to stamp out “black money,” or cash held from illicit means. In 2018, India’s Aadhaar system decided every resident effectively needed access to the biometric identification platform in order to buy a cell phone or access banking services.
A continent away, the Central Bank of Nigeria (CBN) published a document saying banks cannot provide crypto exchanges with services. Binance and Bundle Africa immediately announced they would suspend deposits.
Here, too, the CBN says its ban isn’t new, but rather that its statement last week is merely reiterating a position it has held since 2017. Still, the timing of the move is interesting, coming just months after residents began using bitcoin to raise funds as part of the #ENDSARs movement.
Basically, this looks like a trend. Crypto is getting to a place where governments have to pay attention to it. Some industry insiders seem less alarmed about Nigeria’s ban than their Indian counterparts are about the subcontinent’s ban.
Meanwhile, Congress is gearing up to face a number of issues this year, beginning with an impeachment trial that starts this week and coronavirus pandemic relief. However, a number of cryptocurrency issues will likely work their way through Capitol Hill. Here are a few of the major players to watch:
Last week, President Joe Biden formally withdrew the nominations of Robert Benedict Bowes and Brian Brooks. Bowes was former President Donald Trump’s nominee to be a Commodity Futures Trading Commission commissioner to succeed current Commissioner Brian Quintenz. Brooks, the former Acting Comptroller of the Currency, was nominated to a full five-year term. Biden is expected to name Chris Brummer and Michael Barr to fill the CFTC and OCC roles.
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See ya’ll next week!