In its almost twelve-year history, Bitcoin (the oldest and largest cryptocurrency in the world) could finally see a good growth.
By the end of the troubled year 2020 in history, Bitcoin rose to an all-time high, reaching a peak of $23,000 or more. Bitcoin and many of the blockchain descendants that make up the cryptocurrency field are set to start the New year with solid moves. Just as Bitcoin turned 12 on Jan 3rd.
As reported by Forkast.News, US regulators will create a legal framework for cryptocurrency to operate within this cryptocurrency during 2020. These can be found in the office of the currency auditor, the Securities and Exchange Commission (SEC). Faces. And the Commodity Futures Trading Commission (CFTC). Traditional banks and other financial institutions are now buying hundreds of millions of dollars worth of Bitcoin as fixed assets. Even PayPal (formerly the number one in cryptocurrency, known for closing accounts with the slightest hint that they are conducting cryptocurrency transactions) now allows its customers to conduct transactions in crypto form.
It is an extraordinary time indeed. However, the bull market for Bitcoin and other cryptocurrencies in 2020 doesn’t mean they will run for free.
Let’s look at 2021, here are three prediction for the new year
1. The tax officer comes to find your cryptocurrency
When cryptocurrencies reach record highs, many people will seek to cash out and realize their capital gains. Then the tax officer wants to do something.
Where do whales get tax advice? Just like any wealthy person, one of the four major accounting firms. As PricewaterhouseCoopers (PwC) pointed out in its recently released Global Cryptocurrency Taxation Report, tax authorities around the world have started issuing very detailed guidance on a taxable event. Tax authorities care about everything from crypto stacks and DAOs to crypto loans because they know that large sums of money can be involved and want their share. Beware of whales and crypto influencers.
However, PwC said there was still a lot to be done as many gaps between tax authorities’ guidance.
“As this is such a new industry there is still a bit of a blank slate when it comes to tax policy,” Peter Brewin, Tax Partner at PwC in Hong Kong, said in a statement on the report. “By highlighting what different jurisdictions are doing we can start conversations that can lead to better laws being developed in this area.”
2. Crypto derivative exchanges becomes professional
Where’s Binance? Carmen Sandiego didn’t even know the place. Where’s Huobi? You could say China, but in fact it is holding a corporate flag in the Seychelles. And Sam Reed, BitMEX CTO? Arrested.
Cryptocurrency derivative exchanges like to fly colorful company flags like the five bands in the Seychelles. Blue, yellow, red, white and green – everywhere except at home.
This does not apply to large institutional investors. You need to know where the customer’s money is going. Going under the rabbit hole or entering companies with structures like Russian nesting dolls won’t work. With the inflow of institutional funds, open interest in Bitcoin futures (the total number of open derivative contracts) through the CME derivatives market recently hit a record high.
However, this does not mean that regulators have not sent any signals, but that they are all used in regulated crypto derivative exchanges. Heath Tarbert, chairman of the CFTC, said cryptocurrency derivatives support “pricing, hedging and risk management”. The CFTC’s strategic plan has always emphasized the need for regulators to deal with the risks and opportunities posed by so-called “raw materials of the 21st century”.
What is the inhibition rate? Institutional funds want to invest, and the regulator gives the go-ahead for the time being. Why isn’t the largest cryptocurrency derivatives exchange getting into this game? Obviously there is an opportunity to make money through crypto margin trading.
Margin trading is common with every stockbroker. The ability to provide reputable traders with low-interest loans to buy and sell stocks and commodities creates additional liquidity in the market. However, regulators have targeted and challenged the world of trading unregulated cryptocurrency derivatives based on 100x the margin. This is completely prohibited in the UK and other countries. But who stopped? Very few people. All you need is a VPN to skip those nasty prohibitions. However, this has not impressed regulators. If encouraged by setting up overseas offices and promoting the use of VPNs, it will only put government agencies in greater distress and prevent the inflow of institutional funds.
Therefore, in partnership with regulators, 2021 could usher in a new era of cryptocurrency exchanges as they realize regulators may get better and richer.
3. Stablecoins grow, but regulatory scrutiny intensifies
This year Forkast.News covered at length the surge in stablecoins on, especially those that are not denominated in US dollars. An industry with a market cap of just $5 billion at the beginning of the year can end up with a market cap of $25 billion. Forget the former Libra, now Diem failed to launch. The stablecoin is here now and is used today. You don’t have to wait for Facebook.
The growth of non-dollar stablecoins has always been an interesting chapter in this story. If there is no connection to the US, why would you want to trade that currency? This may result in the transaction party and counterparty being unnecessarily subject to US regulations. This is one of the ideas behind the Central Bank’s Digital Currency (CBDC), which is liquid remittance tools, reorganizing the money supply, and moving to digital currency instead of digital currency. However, there is still a long way to go. Chainalysis’ analysis shows that stablecoins have been used for remittances in Latin America to replace US dollar denominated payment channels.
However, this growth requires monitoring. Forkast.News examined the proposed STABLE Act, which proposes to replace the legal framework for issuing stable currency exchange stations with banking license requirements. Obviously, many key industry players will not be happy with this proposal and some states may welcome that their existing credit transfer framework is good enough. After all, many stablecoin issuers are trying to go above and beyond to meet the requirements. The fact that this bill came from three left-wing Democrats and a law professor can easily become a Republican target.
There will be some form of regulation, however, and it may not be too early in 2021. The growing consensus between the two parties is that the industry needs to be regulated in order for it to grow and attract capital to the US. The proposed bill may not be overnight, but it certainly will be. After all, nobody knows how Bitfinex minted all these stablecoin brands out of thin air. In addition, it must not be a coincidence that the “T” (for “Network Sharing”) in the “Stability” calculation contains the name of the controversial stablecoin Tether.
Stablecoins have important uses so they won’t go away anytime soon. Only for an industry over $20 billion does the potentially catastrophic excess returns require government scrutiny and oversight.