Category: Regulation

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Australia Blockchain Crypto News Regulation RMIT University Online

RMIT University Urges Australian Government to Reform Crypto Capital Gains Tax

Australia’s Royal Melbourne Institute of Technology (RMIT) University recently called on the federal government to provide more support for blockchain technology. Now, it is urging parliament to implement the reforms outlined by the Select Committee on Australia as a Technology and Financial Centre’s 12-point crypto reform plan.

‘An Opportunity to Take a Global Leadership Position’

In the world of blockchain education, RMIT is recognised as a heavy hitter, having recently ranked second in Coindesk’s index of global blockchain universities. Now, RMIT’s Blockchain Innovation Hub has implored federal parliament to adopt the Senate inquiry’s recommendations on the regulation of crypto assets to help attract jobs, investment and innovation in Australia.

We have an opportunity to take a global leadership position and compete with countries such as the US, Singapore and Switzerland in this incredibly vibrant sector … it is good to see our recommendations to change how cryptocurrency is taxed and how blockchain-based decentralised autonomous organisations are regulated being taken up by the Australian Senate.

Associate Professor Chris Berg, RMIT Blockchain Innovation Hub co-founder

RMIT academic Dr Elizabeth Morton, with concurrence from NSW Senator Andrew Bragg, noted that reforms relating to capital gains were particularly welcome:

We see an urgent need to ensure the tax system achieves balance in simplification, reflective of a digitally driven economy, encouraging tax compliance and protecting tax revenues from the risk of leakage. Reform will offer clarity for taxpayers and confidence in the tax system as a whole.

Dr Elizabeth Morton , RMIT University lecturer of taxation in the School of Accounting, Information Systems and Supply Chain

Committee Urged to Create DAO Company Structure for Australia

Commenting on the recommendations relating to changes to decentralised autonomous organisations (DAOs), RMIT’s Dr Aaron Lane noted it would encourage investment in Australia and represent some of the most significant changes in corporate law. Lane felt that “providing DAO members with the option of a limited liability company structure will encourage talent and investment in Australia”.

Ultimately, Lane saw the reforms in a broadly positive light, saying:

Blockchain and cryptocurrency is not just about providing new types of financial products – this technology is the infrastructure for new ways of governing economic exchange.

Dr Aaron Lane, lecturer in the Graduate School of Business and Law and a research fellow in the Blockchain Innovation Hub at RMIT University

While the crypto industry has been broadly supportive of the Senate inquiry’s recommendations, scepticism remains that parliament is unlikely to implement them. Time will tell.

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Regulation Stablecoins Tether

Tether Introduces Controversial ‘Travel Rule’ to Combat Financial Crimes

Tether Holdings Limited – issuer of the stablecoin USDT – has announced the integration of Notabene’s end-to-end solution to comply with AML (anti-money laundering) laws and combat cross-border crime. 

Tether to Comply with AML and KYC Laws

As per an announcement on October 26, Tether will test Notabene’s platform to facilitate compliance with the Crypto Travel Rule, a mandate established by global financial watchdog Financial Action Task Force (FATF) on June 20, 2021.

The mandate stipulates that Virtual Assets Service Providers (VASPs) (such as crypto exchange and stablecoin issuers) should be regulated in the same way that regular financial institutions do. Thus, VASPs would have to comply with AML and KYC laws, providing descriptive information between counterparties when transferring digital assets.

It’s important that we work with other large VASPS to build this industry from the ground up. We see this as an opportune moment to foster cooperation across traditional and digital channels in order to create better services for customers globally. We are proud to lead the charge on behalf of all stablecoins in order to make a positive change towards protecting our clients.

Leonardo Real, CCO, Tether

‘Anyone Seen Tether’s Billions?’

Tether has repeatedly claimed its USDT reserves are a conglomerate of several assets, including commercial paper and fiduciary deposits, with only 3.87 percent in cash. Yet Tether’s detractors are not convinced.

Two weeks ago, Bloomberg released a hit piece targeting Tether, titled “Anyone Seen Tether’s billions?” The author, Zeke Faux, calls the company a fraud, and claims that the firm has loaned billions of dollars to various crypto companies, and that it holds debt with various Chinese firms, including real-estate giant Evergrande.

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Bitcoin Crypto News Ethereum Investing Regulation

US Firefighter Fund Invests $25 Million in Crypto, Sparking a New Trend?

An American firefighters’ pension fund has invested US$25 million in bitcoin and ether, marking the first time a US public pension plan has invested in digital currencies, according to an October 21 announcement. This bold move is leading many to reconsider their stance on cryptos.

Houston Firefighters’ Relief and Retirement Fund (HFRRF) announced its crypto purchase through NYDIG, a digital assets manager and subsidiary of Stone Ridge Assets Management. The investment was made through a customised private fund that will be managed by NYDIG.

Taking the First Step into the World of Cryptos

In the context of the announcement, HFRRF’s chief investment officer Ajit Singh spoke of the importance of investing in cryptos:

This investment expresses our belief in the disruptive potential of distributed ledger technology for the development and democratisation of value accumulation through disintermediation.

Ajit Singh, CIO, HFRRF

Singh went on to say:

We have been studying digital assets’ transformative potential for some time, and we are pleased to have a partner of NYDIG’s calibre to ensure secure, robust and efficient execution, and enhanced compliance, as we enter this new market.

Ajit Singh, CIO, HFRRF

HFRRF’s benefactors include more than 6,600 active and retired firefighters and survivors of firefighters, and the fund holds over US$4 billion in total assets. Since 2004, HFRRF members have been contributing 9 percent of their salaries to the fund.

This purchase marks an important milestone for cryptos and their potential role in public pensions and superannuation funds. Nate Conrad, NYDIG’s global head of asset management, said the investment represented a watershed moment for bitcoin.

Entrepreneur and crypto investor Anthony Pompliano took to Twitter to share his opinion and make a bold prediction:

As crypto adoption becomes more widespread, many institutional investors are realising the importance of crypto exposure. Specifically, Australian superannuation funds are being urged to rethink their stance on cryptos or risk falling behind.

Accessing cryptos remains one of the biggest obstacles. To this end, Vault International Bitcoin Fund has established the first bitcoin-only fund in New Zealand. One of the main reasons for launching the fund is to remove the hassle and risk of direct crypto ownership.

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Blockchain Crypto News Facebook Regulation Social media

US Lawmakers Ask Facebook to Terminate Crypto Pilot

Just hours after it had made the announcement of a pilot of its cryptocurrency wallet, Novi, Facebook was ordered by US lawmakers to cease the project in a letter to CEO Mark Zuckerberg.

In the letter, five Democratic Senators urged the company to halt the pilot, citing concerns over the handling of cryptos by the social media giant.

‘Facebook Cannot Be Trusted’

Many concerns have been raised surrounding Facebook in recent times regarding the company’s “relentless pursuit of profits at the expense of its users”. Joining the backlash the company has received, the senators’ letter stated that:

Facebook cannot be trusted to manage a payment system or digital currency when its existing ability to manage risks and keep consumers safe has proven wholly insufficient.

Letter to Facebook signed by five Democratic US Senators

When Facebook first unveiled plans for its crypto project in mid-2019, it already faced a global regulatory backlash. Concerns were raised that the launch of private money by a company of Facebook’s magnitude and user base could destabilise the entire monetary system.

The backlash prompted several partners to leave the project, and the project underwent a rebranding from Diem to Libra.

Facebook responded by saying lawmakers misunderstood the relationship between Diem and Facebook. “Diem is not Facebook”, wrote the company, making it clear Diem is an independent organisation, and that Facebook’s Novi is only one of more than two dozen members of the Diem organisation.

Facebook has said that Novi, once it goes live, will make cross-border payments more efficient and reduce transaction costs.

Lawmakers Remain Critical of Facebook

In the letter issued to Zuckerberg, the senators wrote:

Facebook is once again pursuing digital currency plans on an aggressive timeline and has already launched a pilot for a payments infrastructure network, even though these plans are incompatible with the actual financial regulatory landscape.

This is certainly not the response Facebook was hoping for, though it is not entirely unexpected. Earlier this month, Facebook announced it would hire 10,000 new employees over the next five years to start building its metaverse. However, many are sceptical of this effort and are instead calling on the company to move toward creating a safer, more responsible, and ultimately more trustworthy social platform.

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Australia Crypto News Regulation

Australian Senate Committee Releases 12-Point Crypto Reform Plan

After months of inquiries and input from stakeholders across the board, the Select Committee on Australia as a Technology and Financial Centre (Committee) has finalised its long-awaited report, containing 12 recommendations that, if implemented, will significantly alter the regulation of Australia’s growing digital asset ecosystem.

Senator Andrew Bragg, chair of the ATFC committee. Source: Realestate.com.au

Swift Action Parallels Crypto Adoption Rate

From the outset, one can’t help but be impressed by the comparable speed at which policymakers have grappled with an emergent, complex and relatively unfamiliar sector. It was only seven months ago that the deep dive really began. On top of that, over 100 submissions were received, illustrative of an engaging and proactive industry seeking regulatory certainty. No doubt, the committee’s swift action can at least partially be attributed to the rapid growth of crypto adoption within Australia, particularly over the past 12 months.

The committee grappled with a host of diverse issues within the cryptosphere, including blockchain, tokens, coins, DeFi, staking and DAOs (decentralised autonomous organisations), in addition to thorny matters such as licensing requirements, tax issues and debanking of crypto businesses.

Listening in on a few hearings, it became evident that the committee’s focus was aimed at striking a balance between consumer protection, regulatory clarity and otherwise providing space for the sector to thrive.

This [the recommendations] provides a very clear agenda for Australian leadership on digital assets, in terms of protecting consumers and boosting investment. The market is asking for regulation, and we are responding while trying to avoid trampling on innovation.

Senator Andrew Bragg, chair of the committee

12 Recommendations Made

The committee’s 167-page report offered 12 recommendations which, if adopted by government, will rank Australia among the more progressive and developed digital asset regulatory regimes, alongside countries such as Singapore.

The 12 recommendations are:

  1. Establish a market licensing regime for digital currency exchanges, including capital adequacy, auditing and responsible person tests under the Treasury portfolio.

2. Establish a custody or depository regime for digital assets with minimum standards under the Treasury portfolio.

3. Conduct a ‘token mapping’ exercise, through Treasury and with input from other regulators and experts, to determine the best way to characterise the various types of digital asset tokens in Australia.

4. Establish a new decentralised autonomous organisation company structure.

5. Clarify anti-money laundering and counter-terrorism financing regulations to ensure they are fit for purpose and do not undermine innovation.

6. Amend the capital gains tax regime so that digital asset transactions create a CGT event only when they genuinely result in a clearly definable capital gain or loss.

7. Amend relevant legislation so that businesses undertaking digital asset ‘mining’ and related activities in Australia receive a company tax discount of 10 percent if they source their own renewable energy for these activities.

8. Have Treasury lead a policy review of the viability of a retail central bank digital currency in Australia.

9. Ensure the Council of Financial Regulators implements a scheme to address the due diligence requirements of banks by June next year, in line with recommendations from the 2019 ACCC inquiry into the supply of foreign currency conversion services.

10. Develop a clear process for businesses that have been debanked. This should be anchored around the Australian Financial Complaints Authority, which services licensed entities.

11. Ask the Reserve Bank of Australia to develop common access requirements for the new payments platform in accordance with the report by Scott Farrell, to reduce the reliance of payments businesses on the major banks for the provision of banking services.

12. Establish a global markets incentive to replace the offshore banking unit regime by the end of next year.

Naturally, the devil is in the detail as to precisely how these recommendations are reflected in the legislation. One’s only hope is that legislators spend sufficient time engaging with the issues to give Australia the best prospect of creating a dynamic and thriving local crypto industry.

Reactions Vary Within Crypto Community

Overall, the sentiment from the crypto community has been mixed, which is to be expected, given that so many diverse participants provided input into the process.

Many have echoed the sentiments of CoinJar, who praised the committee’s approach:

We applaud the ATFC for the forward-thinking approach they’ve taken with this proposed regulatory framework. CoinJar is committed to offering people a safe and positive experience when it comes to investing in cryptocurrency and we believe that effective regulation is the best way to achieve this.

Asher Tan, CEO, CoinJar

However, some said the report lacked sufficient detail, while others argued that it was doubtful whether government would actually implement the recommendations. Many are unquestionably also disappointed by the absence of “safe harbour protections“, which would otherwise have blocked damaging retroactive legislation.

Whatever your view, Australia seems to have taken a step towards greater regulatory clarity, something almost all market participants would welcome with open arms.

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Australia Crypto News Industries Regulation

Australian Cybersecurity Bill Slammed by Industry Bodies as ‘Over-Reaching’ and ‘Fast-Tracked’

A new Australian Infrastructure Bill that gives the government considerable powers in the event of a high-risk cyberattack is in the process of being passed. Yet the Bill has been criticised by a coalition of Australian and US tech companies, while the government pushes to get its new permissions “fast-tracked”.

The Australian government is in the process of introducing an enhanced regulatory framework, building on existing requirements under the Security of Critical Infrastructure (SOCI) Act.

The Parliamentary Joint Committee on Intelligence and Security (PJCIS) has made 14 recommendations and looks to amend the SOCI Act to add three permissions. The tech coalition’s specific concerns relate to Part 3A of the Act, which allows “government assistance to relevant entities for critical infrastructure sector assets in response to significant cyberattacks that impact on Australia’s critical infrastructure assets”.

According to a report by The Australian newspaper, if the permissions are granted, the Australian Signals Directorate (ASD), a government agency in charge of cyber warfare and information security, would be able to take over control of critical infrastructure such as energy, communications and banking systems.

The Critical Infrastructure Bill will be introduced to parliament on October 27, with bipartisan support from the committee that examined it.

Tech Industry Doesn’t Agree

The Information Technology Industry Council (ITI), Cybersecurity Coalition and the Australian Information Industry Association (AIIA) are opposing the bill and stated in a letter to Karen Andrews MP, Minister for Home Affairs, that they were “disappointed” by the fact that no changes were made after they had given recommendations, and that the Bill was to be “fast-tracked and pushed through as a separate Bill, without further public consultation”.

The PJCIS recommended that emergency powers be swiftly legislated in a stand-alone bill, with a second, separate bill to be introduced following further consultation. The tech coalition stated in the joint letter that “without significant revision, the bill will create an unworkable set of obligations and set a troubling global precedent”.

While the government asserts that this power is intended only as a measure of last resort to address “cybersecurity incidents”, the Bill provides the government with unprecedented and far-reaching powers, which can impact the networks, systems and customers of domestic and international entities, and should be subject to a statutorily prescribed mechanism for judicial review and oversight.

Tech coalition letter

The group strongly urged the Australian government to consider the precedent the Bill sets for Australia’s trade partners in addressing national security risks, as well as the challenges Australian companies may face in other markets if these requirements are replicated by other governments.

The Increasing Importance of Cybersecurity

This comes after a new Ransomware Action Plan, released last week, that allows Australian authorities to seize or freeze financial transactions in cryptocurrencies that are associated with cybercrime, regardless of their country of origin.

The PJCIS has stated that the “threat of cybersecurity vulnerability and malicious cyber activity has become increasingly evident in recent years”, with about a quarter of reported cybersecurity incidents affecting critical infrastructure organisations.

According to Senator James Paterson, chair of the parliamentary committee: “While sympathetic to the concerns of industry leaders, the committee does not believe that pausing the entire Bill is in Australia’s national interests given the immediate cyber threats that our nation faces”, adding that “the committee’s recommended solution allows for urgent measures to pass now to equip the government with the emergency powers it needs, while allowing additional time for co-design to overcome the concerns of industry about the regulatory impact”.

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Bitcoin Crypto News Regulation

Bitcoin Futures ETF Records $1 Billion in Trading Debut

The first US-based Bitcoin exchange-traded fund (ETF) has finally listed and surpassed all expectations. ProShares Bitcoin Strategy ETF, trading under the ticker $BITO, recorded a historic US$1 billion in its first day of trading, easily the biggest day one of any ETF in terms of ‘natural’ volume.

 

Since ProShares’s Bitcoin (BTC) futures ETF listed on the New York Stock Exchange on October 19, it has been met with explosive interest. The news comes soon after Jacobi Asset Management, a London-based multi-asset investment manager, announced it had received approval to launch the first European Bitcoin ETF.

Biggest Day One Recorded

$BITO has had the biggest first day in terms of ‘natural’ trading volume and has also traded more than 99.5 percent of all ETFs, according to Bloomberg ETF correspondent Eric Balchunas.

Futures, and Not Spot ETF

Interestingly, $BITO listed on the New York Stock Exchange, not after approval from the US Securities and Exchange Commission (SEC) but rather due to the SEC’s lack of objection within 75 days of the initial application.

$BITO will not provide any direct exposure to the BTC spot price. In usual instances, when you buy a regular ETF, the value of the share is based on the price of the asset underlying the fund. However, in the case of a futures ETF, a number of additional factors may lead to the price of the shares diverging from the asset.

The narrative surrounding ETFs has always been that if granted, a Bitcoin ETF would open the door for many new participants who are otherwise not interested, nor able to navigate the complexities of entering the world of cryptos. Accordingly, an ETF would then expose institutional and retail investors to BTC in a simple, trusted and familiar way.

Moving in the Right Direction

Although $BITO or any other futures-based ETF will not entirely allow for the traditional narrative of ETFs, it is certainly a step in the right direction. While $BITO does give BTC more recognition and credibility, it has been suggested that the futures-based ETF will ultimately act as a bridge for others to launch spot market-based ETFs.

Following the launch of the ProShares ETF, it has been reported that Valkyrie Bitcoin Strategy ETF may also commence trading early next week. As all eyes are on the company, most focus has however been on Twitter as the ETF’s ticker symbol, in an apparent nod to the community, changed from $BTF to $BTFD, or ‘buy the f*cking dip’.

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Bitcoin Crypto News Regulation

Mixed Reactions as SEC Approves Bitcoin Futures ETF

The much-anticipated first US-based Bitcoin exchange traded fund (ETF) has arrived with a mix of both excitement and controversy. Pending no last-minute regulatory interference, the ProShares bitcoin futures-based ETF is expected to go live later today.

While some have celebrated the news, others are more sceptical:

Futures, Not Spot ETF

Last Friday, ProShares filed a post-effective amended prospectus which stated its intentions to list the ETF on Monday, October 18, under ticker $BITO. It is now confirmed that it will instead formally list later today on the New York Stock Exchange. Interestingly, when listed, it won’t be due to formal approval from the SEC but rather, due to the SEC’s lack of objection, within 75 days of the initial application.

Critically, however, $BITO will not provide direct exposure to the bitcoin spot price:

The Fund seeks to provide capital appreciation primarily through managed exposure to bitcoin futures contracts. The Fund does not invest directly in bitcoin.

ProShares, SEC statement

Ordinarily when you buy a regular ETF, the value of the shares is based entirely on the price of the underlying asset. However, when you buy a futures ETF, a host of other factors could lead to the price of the shares diverging from the asset. This creates opportunities such as the “contango trade”, where professional traders are able to exploit opportunities between the futures and spot prices.

Who Benefits From a Futures-Based Bitcoin ETF?

Since the Winklevoss twins’ bitcoin ETF was first rejected in 2013, the narrative has always been that, when granted, a bitcoin ETF would open the door to a host of new participants who are otherwise not interested in dealing with the complexities of self-custody. An ETF, the argument goes, would enable institutional and retail investors to gain exposure to bitcoin in a simple, trusted and familiar format.

The futures-based ETF doesn’t do quite that, but it is no doubt a step in the right direction. While it provides bitcoin with increased recognition and greater credibility, some have suggested that the futures-based ETF will ultimately act as a bridge for others to launch a spot market-based ETF. Despite “broadening the bitcoin tent”, the futures-based ETF has met with criticism from some unlikely sources.

Raoul Pal, a former Goldman Sachs hedge fund manager, appeared to be defending retail investors in his scathing take on Twitter, saying that hedge funds would “make a fortune out of this”:

This vehicle means that the arbitrager takes their slice, the ETF provider takes their slice, the lawyer who set up the fund takes their slice, the administrator, the auditor … I mean, everybody is taking a slice out of your pie.

Raoul Pal, Real Vision

Others, “toxic maxis” such as Bitcoin Tina, were less charitable in their assessment:

Despite Canada and Brazil both having bitcoin ETFs, a US-based ETF with direct exposure to bitcoin’s price remains outstanding. While approval is expected in 2021, the overall sense of regulatory hostility towards the crypto sector suggests that it isn’t necessarily a sure thing.

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CBDCs Coinbase Crypto Exchange Crypto News DeFi Regulation Stablecoins

SEC Chair Confirms It Has ‘No Plan to Ban Crypto’, Leaves It Up to Congress

US Securities and Exchange Commission (SEC) chairman Gary Gensler has confirmed the regulator has no intention of banning digital currencies and adopting a policy akin to the Chinese government’s, instead stating that any such ban “would be up to Congress”.

Gensler was appointed earlier this year, much to the joy of the crypto industry for his pro-blockchain and Bitcoin stance. Until recently he has been quiet regarding his stance on cryptos but has since broken his silence.

CBDC Looking Unlikely

At a hearing before the US House Committee on Financial Services on October 5, Gensler was questioned about whether the regulatory body had any intention of banning cryptos in favour of a prospective central bank digital currency (CBDC).

The chairman indicated that it would be up to Congress to enact such a ban. He added that the focus of the government was to ensure the crypto industry complies with investor and consumer protection, anti-money laundering and tax laws.

It’s a matter of how we get this field within the investor consumer protection that we have, and also working with bank regulators and others. How do we ensure the Treasury department has it within anti-money laundering, tax compliance? Many of these tokens do meet the test of being an investment contract, or a note, or security.

Gary Gensler, SEC chairman

Last month, the SEC issued threats to sue the crypto exchange Coinbase if it were to proceed with launching its Lend program, on the basis that Lend is a security.

Jerome Powell, chairman of the Federal Reserve, similarly stated it had no intention to limit or ban the use of the US$2.2. trillion asset class.

During the house committee hearing, Gensler further addressed questions regarding cryptos, stablecoins, and the regulation of exchanges and decentralised finance (DeFi). The requirement for digital asset firms to sign up with the regulatory body was also discussed, with Gensler hinting that decentralised exchanges (DEXs) could be required to comply with the same rules.

Even in decentralised platforms – so-called DeFi platforms – there is a centralised protocol. And though they don’t take custody in the same way [as centralised exchanges], I think those are the places that we can get the maximum amount of public policy.

Gary Gensler, SEC chairman

The SEC has been “actively investigating” Uniswap Labs, the parent company of the leading DEX, Uniswap.

Stablecoins Are Like “Poker Chips” at the Casino

Gensler consolidated his position on stablecoins, indicating they may prove to be a risk for the economic system. With an estimated US$125 billion tied up in stablecoins, Gensler has described them as “poker chips” in the crypto casino, raising concerns that the market, which has grown tenfold in the past year, might be creating a system-wide risk.

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CBDCs Crypto News Regulation Worldwide

IMF Recommends Standards for CBDCs and Crypto to ‘Ensure Financial Stability’

The International Monetary Fund (IMF) has released a set of policy recommendations for crypto regulation to stave off financial stability challenges amid the global adoption of crypto.

As rightly stated in the IMF blog, “As crypto assets take hold, regulators need to step up.” As the use of blockchain and volume in the crypto industry increase, there have been pleas for more regulation to act as a guiding light for individuals and companies in the space.

The total market value of all crypto assets surpassed US$2 trillion as of September 2021, a tenfold increase since early 2020. Stablecoin supply in particular has quadrupled throughout 2021 to reach US$120 billion.

As ecosystems fill up with more decentralised exchanges (DEXs), wallets, and a plethora of dApps, it seems crypto assets are seeping into the mainstream. The use of this new technology has many benefits as far as innovative financial services go, but as the impacts and risks on financial stability and wider economy become apparent, bridges need to be built to protect consumers.

Cryptoisation is much like dollarisation, where residents start using crypto assets instead of the local currency. This phenomenon can reduce the ability of central banks to effectively implement monetary policy. It could also create financial stability risks, such as through funding and solvency risks arising from currency mismatches. Increased demand for crypto assets could also facilitate capital outflows that impact the foreign exchange market.

Policymakers should implement global standards for crypto assets and enhance their ability to monitor the crypto ecosystem by addressing data gaps. Emerging markets faced with cryptoisation risks should strengthen macroeconomic policies and consider the benefits of issuing central bank digital currencies.

IMF

IMF Policy Recommendations

In the document curated by the IMF, one of the main points is that regulators and supervisors need to monitor developments in the fast-evolving crypto ecosystem, with the ability for “cross-border coordination to minimise the risks of regulatory arbitrage and ensure effective supervision and enforcement”.

On a national level, regulators also need to prioritise the implementation of global standards. However, at the moment they are mainly focused on money laundering and proposals regarding bank exposures. These need to be extended to “areas such as securities regulation, as well as payments, clearing and settlements may also be applicable and need attention”.

In developing countries, “cryptoisation can be driven by weak central bank credibility, vulnerable banking systems, inefficiencies in payment systems and limited access to financial services”; this inadvertently leads to the use of digital assets and DeFi, due to low barriers for entry and use.

IMF

The decentralised finance (DeFi) sector grew from US$15 billion at the end of 2020 to about $110 billion as of September 2021, with the lion’s share of volume coming from countries with historically the largest institutional and professional markets.

Authorities should prioritise strengthening macroeconomic policies and consider the benefits of issuing central bank digital currencies and improving payment systems. CBDCs may help reduce cryptoisation pressures if they help satisfy a need for better payment technologies.

IMF

In addition to CBDC implementation, de-dollarisation policies will help governments tackle macro-financial risks, and as the role of stablecoins grows, regulations should be proportionate to the risks they pose and the economic functions they serve.

Since the development of blockchain and related technologies doesn’t seem to be slowing down, regulators need to act swiftly to address vulnerabilities to ensure users’ safety.

Digital Assets Comparable to Mainstream Benchmarks

Three years of IMF data suggests that risk-adjusted returns of non-stablecoin crypto assets like Bitcoin are comparable to other mainstream benchmarks such as the S&P 500.

IMF

During the past three years, an exceptional amount of money has flown into digital assets, both creating and destroying wealth. As adoption increases, more people are exposed to these technologies and their exponential growth could have major consequences.

The IMF report stated that “financial stability risks are not yet systemic, but risks should be closely monitored given the global implications and the inadequate operational and regulatory frameworks in most jurisdictions”.