WWW.LAWYER-MONTHLY.COM 14 Cryptocurrency experienced a record bull run in 2021, briefly propelling the market past $3 trillion in value in November. Two months later, a wave of new crypto restrictions and outright bans by several major economies has coincided with a catastrophic price plunge, all but erasing the market’s gains. Russia became the latest nation to join in the evolving conversation this week as the Bank of Russia called for a blanket ban on the mining, trading and usage of cryptocurrencies in the country. Though it remains to be seen whether any ban will materialise after President Vladimir Putin weighed in on the side of crypto miners, Russia would be far from the first to implement such measures. The list of countries that wholly banned cryptocurrencies includes China, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, Bangladesh and (as of this month) Kosovo. Forty-two others have passed restrictions to this effect, prohibiting crypto exchanges or limiting the ability of banks to engage with crypto. What are the factors driving these decisions, and how might they affect the future of global crypto regulation? Economic Impact The current global ‘crypto crash’ is not the first time that Bitcoin and the wider crypto market has greatly depreciated in value. Similar crashes have occurred in 2021, 2020, 2018, 2013 and even earlier. These cyclical bull and bear runs are owed to the inherent volatility of crypto. As a decentralised currency independent of the backing of governments or financial institutions, Bitcoin and other virtual tokens allow for greater transactional freedom while being susceptible to extreme price fluctuations sparked by investor speculation and media hype. Crypto’s volatility has spurred the creation of so-called ‘stablecoins’ such as Tether, which do away with the premise of decentralisation by pegging themselves to the price of a stable asset – commonly the US dollar – though these tokens are highly dependent on the resources and good behaviour of their issuers, as was shown when a lawsuit brought by the state of New York found that Tether Holdings did not possess the $69 billion it claimed to be backing its currency. A case study can be found in El Salvador, which in September 2021 became the first country to adopt Bitcoin as legal tender. Intended to expand financial inclusion and help residents save on annual commissions on remittances, only a small fraction of businesses moved to accept transactions in Bitcoin due to concerns over price volatility and data privacy. The International Monetary Fund (IMF) cited these issues alongside “large risks associated with the use of Bitcoin on financial stability, financial integrity, and consumer protection” in a report recommending that El Salvador remove Bitcoin’s legal tender status. Lack of Regulation As an emerging technology, new legislation has been required to define and govern the use of cryptocurrencies, with widespread recognition of the assets among governments a relatively recent development. For some investors, the blockchain’s emphasis on individual users and lack of state regulation is one of its primary selling points. For governments, this lack of regulation presents significant issues, not least the difficulty involved in calculating the tax liability of cryptoassets. The Indian government touched on this while announcing a bill to ban most private cryptocurrencies in November. In addition to allowing only certain cryptocurrencies to promote the underlying technology and its uses, India will launch its own official cryptocurrency. Prime Minister Narendra Modi has also been outspoken on his wish for deomocratic nations to cooperate on the regulation of crypto to ensure that it does not “end up in the wrong hands”.
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