The G20 central bankers and finance ministers met in Buenos Aires in March of this year to discuss various topics, from international trade to investment in global infrastructure. One of the topics that were covered was regulating the cryptocurrency sector. Thanks to the recent increase in popularity and increasing number of people using it, the cryptocurrency has attracted the attention of many regulators and political actors.
Since then, the G20 has been studying different ways they could reduce the risk in the cryptocurrency markets. While doing that, they are also trying to regulate the market in a way that would not hinder further development and innovation of the blockchain technology.
With the uncertainty in crypto regulations, many entrepreneurs feel like there is a cloud over their head when operating a blockchain business. But with an engaged cooperation and positive regulations, things could change very quickly and head in the right direction while bringing in enterprise-grade users and also an increase in institutional investors.
The central bankers and finance ministers will be discussing these topics this summer in Argentina while the full G20 meet is scheduled in late November. Whatever decision that they come to will decide the future growth and how the cryptocurrency markets evolve in the future. Not only that, this will also influence the decisions that other governments and entrepreneurs will make in the years to come.
Mark Carney, the Governor of the Bank of England and Chair of the G20’s Financial Stability Board did make some positive comments in March 2018. He said that blockchain has “the potential to improve efficiency and inclusiveness of both the financial system and the economy.” But based on his remarks, if we were to integrate both the traditional system and the blockchain technology, it would require substantial work beforehand along with rigorous testing before anything can be released to the public.
The Significance of the G20 Forum
The primary goal of G20’s Financial Stability Board (FSB) was to better coordinate the prevention and also have coherent responses to financial stability. The forum was created after the Asian debt crisis of 1997, and the FSB was created way before that, during the Great Recession.
The FSB has been critical to enhancing banking regulations through the Basel Accords which is an opt-in transnational framework designed to strengthen the resiliency of global financial systems and to promote good economic governance policies.
So you might ask why do the decisions that the ministers make at this meeting will have far-reaching effects?
The G20 along with the FSB is the perfect opportunity to either have a global regulatory framework for the cryptocurrency market, or they could entirely shut it down and no other government would adopt it or regulate it. Here’s why this is the greatest opportunity to make crypto a mainstream, or possibly, a global currency:
- The G20 and FSB convene the most relevant stakeholders and decision makers.
- They can craft a framework that is transnational in scope (meaning almost every nation in the world will feel the effects of the decisions made here, and a majority of those nations are actively taking part in the decision-making process).
- The forum is already researching and studying cryptocurrencies and finding ways as to how they can reduce the risk for investors, and what is their impact on a number of different fields.
So you see why this is such a crucial moment in cryptocurrency history.
On top of that, the economic ministers who have the technical ability to craft a good policy will also ensure that whatever framework is created, since it will be transnational in nature, they will address issues such as tax evasion, money laundering, and investor protection that transcend borders. This would be a majorly positive framework because we are still being targeted by scams and frauds, mostly through ICOs.
This would greatly minimize the risk posed by regulatory arbitrage to nations where firms can exploit loopholes in order to gain advantages based on geography.
So what are the chances of the G20 completely going against cryptocurrency?
Pretty slim. Because the G20 member states and the FSB staff are actively working on these issues, so they clearly are paying attention. But more importantly, they do desire to craft a policy that will not hinder innovation. So I think that we are in good hands here.
What’s the Approach they are Taking?
Well, different nations have taken different approaches as to how they want to regulate cryptocurrencies and related markets. Right now a comprehensive framework is likely years away, but there are a few key points that stand out in crafting a regulatory setup.
Like for instance, the G20 and FSB are deciding on a working definition of cryptocurrency. They are taking clues from how different nations have classified cryptocurrencies and seeing how they would work out in the future once the crypto markets mature.
Like Israel has classified cryptocurrency into payment tokens, security tokens, and utility tokens.
This is a very important issue because once there is clarity on this, it will allow entrepreneurs a general guideline to follow, while the investors can also make better, more educated guesses on which projects they would like to invest in. Not only that, it will also allow the governments to help regulate the cryptocurrency.
But since the industry has not matured enough, it is possible that the G20 and FSB would have to accept the fact that not all the information would exist yet. So they would have to wait and see what other governments are doing. Like for instance, the U.K. has created sandboxes that will provide the country’s Financial Conduct Authority to be flexible enough so that they can evolve to meet the demands of the industry as time goes on.
But Japan’s solution to this would be the most efficient here. The Japanese Financial Services Agency has made it mandatory for the crypto firms to obtain licenses and also work with self-regulating organizations (SROs) to help police the space.
The Impact on the Industry
It is highly possible that the G20 is putting their effort toward creating a framework that is comparable to Basel, which would be an opt-in framework where the nations would agree on basic tenets for regulating cryptocurrency with active input from the industry.
So does this mean that the blockchain and cryptocurrency projects would die?
On the contrary, the increase in regulations almost always means that the markets will be more secure, aka, less risky. And as long as it is done with the cooperation of the industry stakeholders, this will end up increasing the technology adoption rates by large enterprise users. Not only that, these regulations will then assure the institutional investors that the government will back them up if something goes wrong with their investments (not that they won’t if there were no regulations. The regulations just allow the investors know the borders that these firms would operate within.)
Several large firms have already begun investing in and exploring blockchain applications and their potential uses to streamline costs and also to gain a competitive advantage with their peers. So this is becoming a perfect storm that is needed to help the entire cryptocurrency/blockchain industry to start exploding. And with a regulatory framework in place, these firms, especially the publicly traded companies would have a framework through which they can shape their internal and external compliance requirements.