The year 2021 was major for cryptocurrency. We witnessed all time highs and steep plummets, but one clear trend amongst the volatility is that public discussion on the topic reached hitherto unseen levels. This was fueled by such diverse factors as bitcoin upgrades, NFT artwork, China’s September ban and Elon Musk’s SNL antics.
The spotlight has carried on into 2022, and not always for favorable reasons. The market had been predicted to grow at an annual rate of nearly 13% until 2030, meaning that regulators were paying extra attention to an industry that has regularly been labeled ‘ungovernable’. The dramatic crash of January 2022 brought further attention; with approximately $1.4 trillion wiped from the combined crypto market, more eyes were on crypto than ever before.
Issues With Crypto
The clamor to take control of crypto is an inconvenient necessity for regulators, given its reputation for being so difficult for them to deal with.
Current SEC Chairman Gary Gensler likened the cryptocurrency market to the “Wild West”, labeling it an asset class “rife with fraud, scams and abuse,” and claiming that investors don’t have enough regulatory protection. He explained, “There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced and complete information.”
There are, of course, always perspectives to consider. Crypto’s decentralized nature challenges the fiat currency system, and weakens a government’s control over the economy. A central bank is no longer required because peer-to-peer transfers can be made between parties, and so intermediaries become redundant. The crypto setup therefore does away with these intermediaries (banks, financial institutions) and, by extension, the elements of a government’s system through which it can exert influence. It would be fair to say that a rebellious streak naturally courses through cryptocurrency; it challenges long-established systems, and government authority.
The market has often been charged with claims of insufferable volatility. This has seen it likened to the Gamestop trading saga, where social media influencers used aliases and carefully cultivated Reddit boards to manipulate the market in a seismic way. While this particular scenario occurred in the regular stock market, the comparison certainly does crypto no favors, given the anger it elicited from traditional institutions that were incensed by the outcome.
Taxation is another complication, although not just for the underhand reasons that one might expect. As Scott Duke Kominers, associate professor of business administration at Harvard Business School explains, “Another basic challenge is around taxation of crypto income. This isn’t just about tax avoidance concerns—a lot of people would like to pay taxes on their crypto but have absolutely no idea how to do so.”
Due to its inherent characteristics of decentralization and anonymity, criminals have naturally flocked to crypto as a "clean" currency to be used for illegal activity. There is also the significant environmental impact of crypto mining to take into account— cryptocurrencies require staggering levels of energy to process the data associated with mining. Approximately 30 kilotons of electronic waste are annually produced as a byproduct of Bitcoin mining.
While there are certainly ethical issues to be considered, there is also a narrative unfolding, which is difficult for a capitalist society built on The American Dream to derail; that of the little guy sidestepping the well-trodden path in pursuit of individual prosperity. However, governments are certainly prepared to use whatever tools are at their disposal to reassert control over the economy.
A Global Crackdown
In recent months, we have seen crypto-focused measures taken in many nations across the globe, with varying levels of urgency and severity.
China occupies the more decisive end of the scale. In September 2021, the Chinese Central Bank decreed that any cryptocurrency transactions conducted within their borders were now illegal.