Crypto regulation big bang to launch CBDCs

After the traditional banking system dominated the financial sector for several centuries and helped governments control the flow of funds. Cryptocurrencies imposed a new reality that led to a decline in the importance of banks and the rise of a parallel market for financial services.

 The only solution for banks is CBDCs.

The International Monetary Fund (IMF) estimates that some 100 countries have either offered digital currencies to their central banks or are considering the matter, so they can face this new reality. The United States is one of the countries with a project in preparation, although an executive order issued by President Joe Biden in March sought to prioritize the digital dollar study.

CBDCs are not crypto !!

The main difference between CBDCs and cryptocurrencies is centralization. A cryptocurrency is a decentralized digital currency. This means that no central part controls it. Transactions are processed and recorded on the blockchain, a distributed public registry. This is not the case with a CBDC. As its name suggests, this digital currency is controlled by a central bank.

E.U. upcoming regulations for crypto

On 14 March 2022, the European Parliament’s Economic and Monetary Affairs Committee spoke on the draft European regulation Markets in Crypto-Assets, known as “MiCA”.

This text is part of the digital finance package and contains a set of provisions aimed “to ensure that the Union’s regulatory framework for financial services is conducive to innovation and does not impede the use of new technologies”.

This upcoming regulation is about to be finalized by the end of June, according to a tweet posted by Patrick Hansen, Crypto Venture Advisor at Presight Capital.

Pushing CBDCs through regulation

In the United States, 26 American researchers specializing in technology have given a letter to American legislators that is very critical of cryptocurrencies and blockchain.

They chose the right time to send their letter. Three weeks ago, the cryptocurrency and stablecoins market experienced major disruptions, causing many experts and entities to react, calling for rapid regulation of this sector.

The LUNA UST crash effect

The crush of Luna has become one of the most exciting events in the entire history of the cryptocurrency market. The currency lost nearly 99% of its value in a few days, and its market value fell from tens of billions of dollars to a few hundred million.

Major exchanges are likely to start checking more comprehensively than new and existing projects available for trading. Regulators will pay more attention to so-called stable cryptocurrencies, which simulate the prices of physical assets such as gold or currencies.

U.S. Treasury Secretary Janet Yellen announced that the market would see appropriate regulations by the end of 2022.

At the same time, the U.S. Securities and Exchange Commission reported on the destabilizing impact of cryptocurrency stability on the health of financial markets.

Coinbase follows new regulations.  

Starting from 27 June, Coinbase users residing in the Netherlands will have to provide detailed information about the recipient when transferring assets off the platform. The exchange is in a hurry to show regulators the white card and anticipates the constraints of the travel rule recommended by the Financial Action Task Force (FATF). A zeal for the best effect in a jurisdiction that wanted to apply it but was twisted for violating existing laws on client confidentiality.

Cryptocurrency has recently been hit hard. Nevertheless, it seems unlikely that the natives of this ecosystem want to use the potential benefits of CBDCs. Indeed, like fiat currencies, CBDCs still pose too many confidentiality risks. Moreover, these currencies will have no use in the challenge and web3 spaces. For the sector, the potential danger remains the policy that central banks and governments will choose to apply. Will they agree to evolve in parallel with the cryptocurrencies we know, or will they try to contain them to increase the usefulness of CBDCs? A story to follow closely.