Since the dawn of the digital asset industry, we’ve seen bad actors take advantage of a lack of consistency in how exchanges operate. Many view the crypto sector as a new-age Wild West, leading some countries to simply implement a ban rather than try to grasp the fundamentals of technology they don’t understand.
Governments, including the American government, were created in a way that makes them innately reactive – particularly as it relates to regulatory compliance.
Well-thought-out policy initiatives such as tax abatement for companies hiring new employees or the child tax credit can serve to promote economic activity or foster certain choices made by the populace, but that’s always been a challenge of the regulatory process. We’ve seen it in the digital assets arena, and we’ve also watched it play out in other areas of cutting-edge technologies such as self-driving cars – even cloning and automated telephone or text-based marketing or scams.
When even a hint of the concept of a new technology emerges, there can be a preemptive move to ban it. In terms of regulating the industry to enhance the general welfare, it takes some time for the regulators – who are not experts in the technology – to come together and develop a rulebook that will define the industry.
Often, they must wait to see what goes wrong before they begin to conceptualize how to safeguard it. That is what has occurred with cryptocurrencies. In the early days, regulators didn’t fully grasp how the mechanics worked, and they thought it was a fad. Now they find themselves facing the reality that digital assets are here to stay.
Central banks are in a skirmish over whose digital currency will reign supreme in the world of international remittances. It wasn’t always this way. First came the beta tests. The Bahamas jumped out in front with the Sand Dollar. China launched a multi-pronged beta test of their own digital currency, involving key economic centers. El Salvador made the first move to make Bitcoin an officially accepted currency.
During all of it, other central banks watched, strategized and made adjustments to their own approach.
This isn’t altogether different from how policy is created. Consider how the State of Massachusetts was a beta test for Obamacare – before President Obama was even elected to the White House. State laws regarding new technologies or new concepts almost always come before a national law – even mundane concepts like sales tax, something that doesn’t sound groundbreaking.
However, it was years after online shopping took the world by storm before state and local governments were allowed to tax online sales in the same manner as they taxed brick-and-mortar locations.
That’s the process. A new innovation emerges. There’s a minor outcry. Regulators and politicians wait to see if it is anything more than a fad. Then innovation reaches a boiling point, and action is taken. Our government is slow and deliberative, for better or worse.
A November joint statement from the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency seems to show that the government is beginning to turn the corner on digital assets. The concern has moved beyond simply stopping money laundering. Now, they’re slated to look at ways to better regulate the custody of digital assets, as well as a more holistic view of the industry.
We’ve finally reached the threshold required for action – just the way our government was designed by the founders. What does this mean for digital assets? As the industry becomes more secure, it enters the mainstream. This is truly the beginning of an international transformation in how we participate in the financial markets.