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Governments Crack Down on Cryptocurrencies

Governments Crack Down on Cryptocurrencies

It’s been a very volatile ride for holders of Bitcoin recently. Bitcoin’s value right now is about four and half times as much as an ounce of gold. Back in 2013 enthusiasts were lucky to see bitcoin top $100. By the end of that year it was over $1000. In the beginning of this year, 2017, the virtual currency was trading at only $966. It remained on an upward trend until the end of the summer when it dropped below $3000 in September. Despite what has been a great year so far, bitcoin’s intense fluctuations are what scare many investors away. One factor affecting the roller coaster movement of digital currencies is increasing government bans around the world.

The price of Bitcoin is very sensitive to government crackdowns. The dip below $3000 in September was due to an announcement from China to begin enforcing a crackdown on bitcoin exchanges and a ban on Initial Coin Offerings. Subsequently the Financial Services Commission of South Korea said all kinds of initial coin offerings will be banned in that country as well. “Stern penalties will be issued on financial institutions and any parties involved in issuing of ICOs,” says the regulator. Then most recently, the Russian government appears to be clamping down on bitcoin. Vladimir Putin, the Russian president, said in a conference that “virtual currencies are  becoming and have already become more popular. They have already become or are turning into a full-fledged payment instrument and an investment asset in certain countries. At the same time, use of cryptocurrenies also carries serious risks… We have seen how bitcoin has transformed a payment unit into an asset, which is bought in order to obtain a high yield in a short period of time. This is the definition of a pyramid.” Although China and South Korea have outright banned ICOs, Russia seems to want to suggest more moderate regulations. “It’s important not to set up superfluous barriers,” says Putin, “But to create the essential conditions for the further development and perfection of the national financial system.”

No one is denying that bitcoin is causing a disruption in the economy. But analysts are split on whether it’s a good thing or bad thing. Some experts say Bitcoin is a complete bubble. They say the underlying blockchain technology will ultimately thrive but bitcoin itself would eventually collapse. Each of the Big Four accounting firms is testing blockchain technologies in various formats. Ernst & Young has provided cryptocurrency wallets to all (Swiss) employees, installed a Bitcoin ATM in their Switzerland office, and accepts Bitcoin as payment for all its consulting services. PwC, Deloitte, and KPMG are all currently testing private blockchains. As more governments attempt to crack down on the unregulated concurrency market, it goes to reason that bitcoin’s value should drop over time, although this hasn’t been happening so far.

Banks and other financial institutions have raised concerns about bitcoin’s associations with money laundering and online crime because virtual transactions take place anonymously. Jamie Dimon, CEO of JP Morgan Chase has declared that Bitcoin is a fraud. He claims that, “it’s just not a real thing. Eventually it will be closed.” In an interview with CNBC last month, Dimon says that as virtual currencies get bigger, governments will try to shut them down.

However the reality is that from Los Angeles to Tokyo, more merchants around the world are accepting bitcoin. Despite the warning about a bubble, the price of bitcoin continues to increase for the past few years. One contention regulators have about digital currencies is the inability to tax transactions. As governments around the world try to understand how to better regulate this growing market, Bitcoin and other digital currencies will continue to see large price swings.

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Governments Crack Down on Cryptocurrencies


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