Pressure is growing for a global regulation of cryptocurrencies that avoids 'black holes' of money

The International Monetary Fund (IMF) calls for a common regulatory framework to prevent crypto assets (such as Bitcoin) serve to avoid taxes and sanctions, or even to favor transactions related to criminal activities. The organization considers that the legal status of decentralized and digital finance must be "clarified" worldwide, very different in each country or region, although it calculates that its importance is still "relatively" small, accounting for 1% of the total value of global markets.

The umpteenth warning about the uses of crypto assets outside the law from developed countries came this week from the IMF, and also from the United States regulator (SEC) or the Bank of Spain.

A notice that coincides with the collapse of the price of Bitcoin and other cryptos in recent weeks and the rush of El Salvador towards a debt default due to the bet of its president, Nayib Bukele, for Bitcoin itself as the country's official currency.

The international organization chaired by Kristalina Georgieva emphasizes that crypto assets "can be maintained and marketed without intermediaries", outside borders and far from different regulations.

"Even when these assets are traded and held through intermediaries such as exchange houses and virtual wallets, they may not be regulated or required to comply with minimum national or international standards," he continues. This main and original characteristic of decentralized finance is, at the same time, one of its main attractions and also one of its greatest risks (or perversions).

Brian Armstrong, executive director of one of the main cryptoactive brokerage platforms, Coinbase, had to deny "bankruptcy" this Wednesday, after the company's shares collapsed on the stock market due to the poor results obtained in the first quarter and the collapse of Bitcoin, and, above all, by regulatory warnings in the United States.

Pablo Hernández de Cos, governor of the Bank of Spain, recognized "some regulatory progress", but insisted that "a lot of work is needed", in a speech in the framework of the BIS (Bank of international payments, according to the acronym in English). "The accelerated development of decentralized finance and crypto assets require a proactive and forward-looking regulatory and supervisory approach. Collaboration between global authorities and bodies is key," he concluded.

"The main motive or reason for 50% of investors [en criptos] is the return on assets. Others do it just for fun or to please third parties and there are those who do it with the intention of exploring the use of alternative currencies without the need for intermediaries. Now, it seems clear that there are few investors looking to protect the value of their income, and that a very small group currently invests with the intention of supporting blockchain technology. [tecnología de cadena de bloques que sirve para generar una infraestructura de registros sin la intervención de bancos ni autoridades]", observes Eduard Garcia Rosicart, professor at OBS Business School.

The profiles to which the expert alludes would explain the aggressive advertising campaigns, with techniques similar to those of bookmakers, that have multiplied in recent months in Spain, but they don't exactly fit with the IMF's concerns. Nor with those of the Tax Agency or the Bank of Spain on the more than 233,000 taxpayers who should declare their investments in crypto assets.

And the IMF goes further, and denounces that most crypto assets are marketed without the possibility of knowing the identity of the investors, or their residence. "The lack of a physical location of the cryptoactive accounting books makes it difficult to determine the residence of the parties that carry out the transaction and the applicable laws," details the agency.

“Traditional policy and regulatory strategies may therefore not be adequately applied to oversee crypto asset markets or market infrastructures for transfer, trading and settlement,” it continues.

And here are the risks. Garcia Rosicart summarizes them from the point of view of the investor: "The volatility [la posibilidad de perder o ganar grandes cantidades de dinero en muy poco tiempo]", the absence of the support of the regulator in the event of a liquidity shock or bankruptcy or the simple disappearance of an intermediary and "computer vulnerability".

While the IMF looks at the institutional ones: tax evasion, non-compliance with sanctions or the use of decentralized finance for criminal activities.

"In many countries, the platforms that operate with crypto assets are regulated only for compliance with the requirements against money laundering and the financing of terrorism," regrets the international organization (recently one of them, Coinbase itself, reported the blocking of 25,000 cryptocurrency wallets related to Russian cybercrime).

“Although many crypto trading platforms are starting to integrate AML/CFT measures into their procedures, criminal actors are also employing innovative cryptographic technology such as Anonymity Enhanced Cryptocurrencies (AEC). in English) to hide the details of financial transactions," says Moody's.

Along the same lines, the Moody's debt rating agency published a report recently asking whether "the imposition of international sanctions on Russia after the invasion of Ukraine has raised questions about whether cryptocurrencies, including Bitcoin, can be used to circumvent them. and restore the ability of Russian individuals and the Russian government to, at least partially, conduct financial transactions."

And more: "Another important question is whether these digital assets can be used as a store of value until the sanctions are lifted." Moody's conclusion is that "given the limited size and low liquidity of the ruble-to-crypto market, we believe that, for now, crypto assets are unlikely to provide a viable and efficient solution for sanctions circumvention."

Source link