For the first time in a long time, the world’s major powers have agreed to launch an offensive against cryptocurrencies such as Bitcoin (BTC). On the one hand, financial authorities are moving forward and analyzing regulatory frameworks to control their use. On the other hand, around 100 countries, including the US, the Eurozone, China and India, are exploring the convenience of launching their own cryptocurrencies as legal tender, digital equivalents of the dollar, the euro and the yuan. The global regulations of cryptocurrencies can be difficult to understand, but Kimberly Rosales uses her expertise on the subject to shed some light for interested parties. 

A few months ago, President Joe Biden called for accelerating the creation of the digital dollar, which will be backed and guaranteed by the Treasury. The initiative revealed huge concerns about the high volatility in the price of existing cryptocurrencies. “Some early forms of financial innovation ended up hurting American families while enriching a small group of people,” argued the White House at the time.

Last year and on repeated occasions, ECB (European Central Bank) President Christine Lagarde launched strong criticism against BTC and called for “globally agreed regulation” because it is a “highly speculative” asset and facilitates “illicit business and money laundering operations.” Lagarde integrates one of the sides of the “rift” between those who believe that cryptocurrencies are the axis of a new monetary and financial revolution and those who believe that it is a classic bubble, that it is not useful and that it is a speculative mania.

“I do not speak of bubbles. Because today there are thousands of crypto and we will have to distinguish between projects. Some will have value; others will be worthless. The same thing happened with the dotcoms,” interprets Rosales. On the regulatory concern of many countries to control BTC, the specialist argues that it is justified in part by “the fear of losing the monopoly of monetary policy.”

Regulatory developments are an attempt by governments to prevent cryptocurrencies from being able to compete with fiat currencies. On the other hand, Rosales describes that despite the abrupt rises and falls in their price, “investors already consider cryptocurrencies as a new option.” She, however, clarifies that peaks of euphoria and disenchantment are common and that “many people are unaware of the risks.”

Like other new technologies (means of payment and eCommerce), the price of BTC was setting records during the pandemic until it reached its peak value on April 15 last year, $64,895 a unit. At that time, several Chinese authorities restricted its operation and from then on, the most famous cryptocurrency entered a downward slope. 

Despite the efforts, it also failed to consolidate as a means of payment. At the same time, the head of the European bank warned that work was underway to create a “digital euro,” comparable to the traditional currency in terms of backing and guarantees. But its development would take time.

The goal of official digital currencies is to limit the adoption of cryptocurrencies. They will be based on blockchain technology; they will be issued by central banks and backed by them. 

Since taking over as head of the US Treasury, Janet Yellen has warned on several occasions about the risks posed by cryptocurrencies. In early 2022 she expressed that BTC is an extremely inefficient way to conduct transactions and that a digital dollar could be faster, safer and cheaper to make payments.

“In theory, all regulation aims to protect people’s money,” Rosales points out. “Something that does not happen with most exchanges, whose operations have little or partial official oversight.”

The average investor is driven by two factors: ambition and fear. Both as a reaction to abrupt trend changes and high volatility in the price of BTC, Ethereum and the more than 18,000 cryptocurrencies on the market.

Launched in 2009, BTC never managed to position itself as a means of payment. Precisely because of its volatility. Some believe that it is a financial asset and others that it is a safe haven of value, in contrast to the return of inflation in countries where the dollar and the euro prevail.