Crypto Weekly: Let’s talk about regulation once again

Once more, regulation is the main focus

Across the globe, the crypto market is to some extent unregulated or at least vaguely regulated through local and often aged laws which originally were not intended for cryptocurrencies. With the increasing market capitalization of the crypto space and the growing on-chain activity over the past year, regulators are increasing their focus on cryptocurrencies. Market participants should be increasingly aware of how regulation can affect the market in both a positive and negative manner.

Lately, particularly stablecoins have been attracting the attention of regulators as the supply has grown from $29bn to $123bn year to date. Over the last week, several major US-based newspapers have been reporting that stablecoins are presumably the most important conversation in Washington financial circles as regulators are examining how to properly regulate stablecoins. According to Bloomberg, officials even consider instituting a formal review by the Financial Stability Oversight Council to conclude whether stablecoins pose a threat to the economy. The impact on the crypto market by regulation on stablecoins should not be underestimated as stablecoins act as a cornerstone in the crypto market due to the most liquid trading pairs being quoted in stablecoins, whereas the majority of decentralized finance protocols are built upon stablecoins. On the other hand, regulation of stablecoins can arguably emerge as a good thing as a proper regulatory framework and clarity for regulated entities can bring more stability in the space.

In Russia, the Central Bank has reportedly issued guidelines targeting banks to get the banks to halt fiat transfers to cryptocurrency exchanges. The intention is to avoid ‘emotional’ purchases of cryptocurrencies carried out by Russian investors, and thus protect investors from losses if the market ‘crashes to zero’, allegedly stated by the central bank. Throughout the years, there have been repeated talks for an outright cryptocurrency ban in Russia, though it has not come into effect.

Uzbekistan, on the other hand, banned cryptocurrency payments in late 2019, and the country will likely never ease its ban on cryptocurrencies, according to statements last week from the deputy chairman of the Central Bank of Uzbekistan, arguing that cryptocurrencies are backed by nothing.

Last week, Turkish President Recep Tayyip Erdoğan hosted a question and answers session. Here, an attendant asked Erdoğan about his opinion on cryptocurrencies, to which Erdoğan answered: “We have absolutely no intention of embracing cryptocurrencies”. Erdoğan added that the country is competing with cryptocurrencies as the country is far in the process of launching a Central Bank Digital Currency, known as CBDC, with its first tests scheduled for later this year.

Venture capital is finding its way into crypto-companies

Last month was markedly extraordinary in terms of venture capital being invested in cryptocurrency and blockchain companies and projects. According to TheBlock, nearly $2.1bn was invested in companies in the industry across 124 funding rounds. In Q2 2021, a total of $4.38bn was raised up from $2.89bn in the first quarter. With the cryptocurrency Avalanche raising $230mn last week, this third quarter will likely beat the total amount invested in Q2. In essence, the increased investment activity in cryptocurrency – and blockchain companies and projects indicates a growing belief in companies and projects serving the crypto – and blockchain industry.

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