Cryptocurrency Matures
For as long as the cryptocurrency market has existed, the general consensus has been that the market is in its infancy and all of its valuations are highly speculative. This week has seen multiple events signaling market maturity, the most prominent being the U.S. Government’s clarification on the classification of cryptocurrencies and the U.S. Commodities Futures Trading Commission’s (CFTC) approval of derivatives trading.
- LedgerX Derivatives Approval
- SEC ICO Investor Guidelines/Warnings
- Future Regulation Possibilities
- Russia Legalizes ICO's
Note: while these recent events are encouraging, the cryptocurrency market is still highly volatile and increasingly speculative with many projects released without a product. This is intended to be informational and should not be viewed as trading advice.
Market Outlook
Since these announcements the crypto market has remained relatively unchanged, likely due to the remaining uncertainty surrounding the Bitcoin fork and the creation of Bitcoin Cash on August 1st. An unchanged market should be viewed as a sign of possible maturity as well as welcomed relief when compared to the previous 3-4 months which saw highly volatile swings. Another positive sign stemming from these announcements is a general consensus on the outcome and direction provided, signaling maturity and legitimacy that will help shape the future of the cryptocurrency market, hopefully helping drive adoption, growth, and acceptance.
Market Regulation
As discussed in our NEO Smart Economy overview, there has been an increased focus on regulating transactions on the blockchain with Anti-Money-Laundering (AML) and Know-Your-Customer (KYC) integration at its core. These are widely accepted standards providing assurances that those taking part in the market are solvent and not associated with criminal activity. Furthermore, because banks and businesses are legally required by KYC laws to identify their customers, integrating KYC functionality into cryptocurrencies will help drive cryptocurrency adoption by financial institution.
Another hurdle to institutional adoption is lack of a clear regulatory framework for cryptocurrencies. The current regulatory framework does not adequately define the type of asset coins and tokens are. The uncertain regulatory framework is a major barrier to institutional adoption due to the fear of Governmental fines and other penalties for improperly handling these assets. Coinbase has touched on this in their blog that the barrier to entry for insuring cryptocurrency holdings is incredibly high. Regulatory clarification would lower this barrier, allowing banks to accept Bitcoin deposits with the option to exchange it for cash. This becomes much more tangible for typical consumers that are not technically savvy. This would also help the fledgling Bitcoin ATM market in the U.S. allowing for expanded use while not having to go to a physical bank.
Market Clarity and Competition
These announcements are a step in the right direction. They provide market clarity for investors and businesses in the US, but further clarification is needed to ensure the US does not fall behind in this emerging market. While countries like Japan, Russia, and China are legalizing cryptocurrencies and even developing their own solutions, it poses a threat to those in the U.S. looking for a legal way to navigate the environment.
In its current state the U.S. regulatory environment is stifling development in the fintech industry which will hinder their chances of catching up and eventually succeeding in the new space. This can already be seen with recent ICO's in the space (TenX, OmiseGo, DCORP, etc.) which already have multiple years of development in countries with defined cryptocurrency regulations.
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