Can Crypto Break Central Banks?

  • Virtual currencies unlikely to challenge sovereign currencies and central banks
  • The Bitcoin experiment has not only survived but expanded beyond niche status
  • Bitcoin could overcome some of the historic disadvantages of private money

The European Parliament’s Committee on Economic and Monetary Affairs (ECON) latest dialogue, Virtual Currencies and Central Banks Monetary Policy: Challenges Ahead, says cryptocurrency is unlikely to take the place of fiat currency, even in the long term.

The July report, says that despite many skeptical opinions, the Bitcoin experiment has not only survived but expanded beyond niche status. Its broad popularity was due in most part to the 2017 bubble which was responsible for attracting new participants to the market.

While the report argues that cryptocurrency is fundamentally private money, and past experiments with private money, such as during the free banking era in the US in the 19th century, failed for a number of reasons, it believes some cryptocurrencies, such as Bitcoin, may be able to overcome some historic disadvantages.

Virtual currencies are a contemporary form of private money. Thanks to their technological properties, their global transaction networks are relatively safe, transparent, and fast. This gives them good prospects for further development say the report’s authors:

To compare them to failed money experiments of the past is limited virtual currencies have a better chance to survive and develop as compared to their predecessors. However, they remain unlikely to challenge the dominant position of sovereign currencies and central banks, especially those in major currency areas. But, in extreme cases, such as during periods of hyperinflation, financial crisis, political turmoil, or war, they can become a means of currency substitution in individual economies.

The report takes a brief look back at the history of private money and concludes that future progress in technology might increase the chances for virtual currencies to effectively compete with sovereign currencies, including the major ones.

Global Task Force, U.S. Tax Agency, SEC Dominate Crypto Headlines

Regulations are ruling the crypto headlines so far this week. Over the past 24 hours, we’ve learnt the Financial Action Task Force (FATF) is reportedly set to finalize new international standards for regulating cryptocurrency firms next month. The commissioner of the Internal Revenue Service (IRS) has stated his agency has “made it a priority” to issue more comprehensive crypto tax guidance “soon.” Finally, the U.S. Securities Exchange Commission (SEC) announced it would delay, once again, its decision on the VanEck and SolidX Bitcoin exchange-traded fund (ETF) proposal.

At the time of writing, bitcoin (BTC) and ether (ETH) are trading at $7,945.4 and $252.9; a 0.54% and 0.83% jump over the past 24 hours, respectively. As for the MVIS CryptoCompare Digital Assets 10 Index, it is currently tracking at 3,822.7 (-0.6%).

Global Standards for Regulating Crypto Firms Next Month

According to reports from CoinDesk, the FATF is set to finalize new international standards for regulating cryptocurrency firms next month. These standards, they report, are widely expected to subject crypto exchanges, wallet providers, and other businesses to the “travel rule” – a colloquial term given to a rule found in the Bank Secrecy Act (BSA) that requires all financial institutions to pass on certain information to the next financial institution, in certain funds transmittals involving more than one financial institution.

Introduced in 1996 in the U.S., the “travel rule” is designed to help law enforcement agencies detect, investigate, and prosecute money laundering and other financial crimes by preserving an information trail about persons sending and receiving funds through funds transfer systems. The arrival of such international standards would go beyond the basic know-your-customer requirements that are widely enforced in the crypto space at present.

IRS Commissioner: More Detailed Crypto Tax Guidance ‘A Priority’

According to letter from IRS Commissioner Charles P. Rettig dated May 16, the agency has “made it a priority” to issue a more comprehensive tax guidance for cryptocurrencies. The Commissioner’s letter was written in response to a request from 21 Congressmen to provide clarity on tax treatment in relation to cryptocurrency holdings.

In 2014, the U.S. tax agency issued a guidance for cryptocurrency. In his May 16 response letter, Rettig revealed the IRS will “soon” issue more robust guidance. “I share your belief that taxpayers deserve clarity on basic issues related to the taxation of virtual currency transactions,” the Commissioner wrote.

SEC Delays Decision on VanEck SolidX Bitcoin ETF

The SEC announced the postponement of a decision regarding the VanEck SolidX bitcoin ETF proposal. The postponed ETF proposal was initially filed over a year ago. In January – amid the U.S. Government shutdown – it was withdrawn, only to be resubmitted later that month. On March 29, the commission delayed the joint proposal for the first time. The SEC must announce its decision – or, for the final possible time, postpone its decision – on the proposed bitcoin ETF no later than August 19.

Notably, the U.S. investor watchdog is seeking comments from the public in relation to the proposed VanEck SolidX bitcoin ETF. To guide commentary, they included fourteen questions in Monday’s filing. Comments must be submitted within the following 21 days, whilst rebuttals to said comments are due within the next 35 days.