Sizzle/Fizzle

Sizzle Fizzle: Apps Sizzle, Startups Fizzle And Regulators Battle Bitcoin

Fizzle of the Week: Cryptocurrency Regulation

The saga over bitcoin and its relationship to various regulators has become something of the payments answer to a romantic comedy. How so?

Because, as of right now, the same basic question animates both plots: Will they or won’t they?

South Korea, as we noted last week, can’t quite settle on which direction they want to take. Last week began with a statement from the Justice Ministry saying that South Korea was definitely going to put in place a ban on bitcoin trading, followed a few days later (after a few waves of angry public outcry on the topic) by a statement from President Moon Jae-in that South Korea will definitely not be banning bitcoin or cryptocurrency trading — but that it would keep a tighter regulatory watch on it to prevent speculation.

Flash forward to this week, and uncertainty still reigns: South Korea’s chief of the Financial Services Commission told parliament this week they still might ban crypto grading after all.

“[The government] is considering both shutting down all local virtual currency exchanges or just the ones who have been violating the law,” a representative noted.

Separately, Bank of Korea Governor Lee Ju-yeol told a news conference that “cryptocurrency is not a legal currency and is not being used as such as of now.”

So, time to panic in bitcoin land?

One might draw that inference by the price dips and spikes over the last week. As of the writing of this article, bitcoin was trading at a little over $11,850 per unit, which is approximately a 40 percent decline from its peak value of $20K — but an improvement from midweek, when the price of bitcoin crashed to below $10K.

All in, bitcoin and its crypto cousins lost (then regained, then lost again) a lot of value this week. Easy come, easy crypt-go, it seems.

According to most news reports, bitcoin traders who’ve been in the game for a while (and have seen a few crashes brought on by looming regulations) are mostly greeting the news out of South Korea (and to a lesser extent China, which is considering cracking down on bitcoin mining) is with a fairly passionless shrug.

Exchanges have been shut down before — in September the price of bitcoin was sliced in half when China closed local exchanges, but by December the price had recovered eight-fold to an all-time high. As one South Korean trader told Reuters: Local regulations don’t really matter all that much for a commodity like bitcoin that is traded anonymously all over the world.

“In case the government shuts down all local exchanges, investors can always go abroad and open an account there,” said a South Korean student who declined to be named because of legal risks. “I can ask my friends who study abroad or travel there myself. It’s not that big of a problem.”

The experts tend to agree, noting that a ban could discourage new entrants into the wild world of crypto trading, but for those already in the game, there isn’t much reason to be worried. If crypto closes down in one place, users can take their anonymous accounts to more regulatory-friendly markets.

In South Korea’s case, those friendlier markets could be Hong Kong, Singapore or Japan — which either have a hands-off approach to crypto (Hong Kong, Singapore) or have become enthusiasts for its developing ecosystem (Japan). All traders will need, according to experts, is a virtual private network (VPN) to hide their IP addresses from authorities. Once that’s complete, traders can more or less carry on as they always have. Decentralized exchanges, such as ShapeShift or Stellar DEX, do not require identification and can be accessed from anywhere on the planet.

Countries with strong protections for citizen privacy will need a warrant to check computers or smartphones for proof of such activity. And even with a warrant in hand, and a smoking gun (or monitor) so to speak, a bitcoin holder can claim they have not been trading since the ban and can no longer access their wallet.

When it comes time to cash out — though most holders are not interested in doing so — there are some options.

There are approximately 2,064 crypto ATMs in 61 countries, and users can store their coins in an offline wallet (glorified USB stick) and travel to an ATM. That is an expensive solution, however, as transaction fees at those ATMS often scrape the 10 percent mark.

Option two is just to open a bank account in a nation with no bitcoin ban and then join a central exchange where they can swap their funds into fiat and place them in said bank account.

“I hold everything in a hard wallet the size of my thumb. I have copies of my private keys in a safe. I have accounts on four exchanges on three continents. If any government wants my money, good luck to them,” said a Hong Kong-based investor who claims to hold “about $1 million” in various cryptocurrencies.

Traders aren’t worried, and it seems they aren’t merely being overly enthused about their favorite form of currency — because, as it turns out, simply banning cryptocurrencies probably won’t change much in the way of enthusiast behavior.

Which doesn’t mean there aren’t still regulatory tricks of the trade that could make cryptos undesirable. Bans on crypto-mining and trading are likely making its future as a currency even more dim, since fiat currency is both a store of value and a medium of exchange. Bitcoin banned can be a store of value, but as a payment method, it probably has no future. Apple Pay has a hard time getting people to adopt it, after all, and Apple Pay is completely legal. It’s hard to imagine merchants and consumers rushing to adopt a currency that may, or may not, be banned in several countries.

Not to mention a volatile currency is something no merchant would want to be anywhere near.

Germany and France will be working jointly to create a more international framework for cyrpto regulation that they will present to a G20 group of major economies in a meeting in Argentina in March, French Minister of the Economy Bruno Le Maire said on Thursday.

“We will have a joint Franco-German analysis of the risks linked to bitcoin regulation proposals, and these will be submitted as a joint proposal to our G20 counterparts at the G20 summit in Argentina in March,” Le Maire told reporters.

“We have a responsibility towards our citizens to explain and reduce the risks,” Le Maire’s German counterpart Peter Altmaier said at the joint news conference in Paris.

They may have some luck.

But the idea that regulators can wave a wand and make bitcoin go away? That notion has fizzled hard this week.

As for next week?

Well, that’s the fun of bitcoin: There is literally no way to know until it actually happens.

 

Sizzles

Bank earnings: Everybody is focused on tax regulations and their impact in the fourth quarter. Charges will be in the billions, to be sure. But underneath it all, big banks such as Bank of America and JPMorgan posted growth in consumer spending — tailwinds from the economy and the positive impact that comes with rising interest rates.

Apt usage of apps: App Annie says there were 175 billion downloads across the globe last year, up 60 percent from two years ago, which signals a healthy app-etite, as consumer spend across those conduits was $86 billion and time spent on apps was up 30 percent.

Tax season: Amid all the regulations and changes to the tax code, the winners may be H&R Block and Walmart, who are selling the former’s software on the latter’s shelves, via virtual and brick-and-mortar retail. Think of it as selling picks and shovels to the miners, in a way, amid a daunting new code that may have many scratching their heads and gnashing teeth as April looms.

 

Fizzles

Startups: Turns out cybersecurity startups are … less than secure, when it comes to starting up. Momentum Cyber estimates that 300 startups launch in the space each year, with only a slice soldiering on to battle the bad guys with success. The bad guys, it seems, are getting pretty good at what they do, and startups need scale — and a proven angle — to succeed. Amid the struggles, some firms are delaying their IPOs.

Mall Anchor Stores: Sears goes. Toys were us. The spaces are not just empty; they’re dark too. The anchor stores are just weighing down the malls. And now retailers have been trying, with various degrees of success (such as Starbucks and Whole Foods) to close quietly, shuttering some locations without much notice and before lease terms are up. Talk about adding injury to insult.

Dollar Stores: Will the dollar store shrink to the quarter or dime or nickel store? Maybe so, if Amazon does what Amazon usually does when it comes in hard to a new arena. The launch of the free shipping option on some $10 and under items means that shelves may stay stocked in brick-and-mortar locations.

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