If history teaches us anything it’s that, if someone wants to sell something and someone else wants to buy it, the government can’t stop that. Not for long at least.
Government can regulate the process, it can restrict volumes, it can step in to stabilize prices on occasion, it can set reporting requirements so that it can prosecute criminals who actually victimize consumers — and of course it can tax the sale.
In the cryptocurrency market, as in securities or commodities markets, the regulatory honeypot is the exchange. Many nations have come independently to the conclusion that they can’t just wish away digital coins, but they can make it harder for their citizens to buy or sell them.
It’s the same principal as the Volstead Act, the 1919 constitutional amendment which made it illegal for anyone in America “manufacture, sell, barter, transport, import, export, deliver, furnish, or possess [any] intoxicating liquor”. The part about “possess” was problematic, of course. The law went on to clarify that enforcers wouldn’t be allowed to search private homes looking for the liquor cabinet in the den, but that didn’t make the bottle of triple sec you kept for special occasions any less illegal.
So the chokepoint for Prohibition in the United States was the sale and distribution, not the actual possession, of alcohol. It didn’t work. Similarly, today there are countries that are cracking down on trading crypto, which is a whole lot easier than cracking down on owning it.
It’s working out just about as well as that long-since-repealed 18th Amendment. Those of us on the BQT.io team are munching on popcorn as we watch this slow-motion disaster montage play out. We passionately believe that as much as regulations are important, it is also important to allow wallet-to-wallet decentralized digital tokens exchanges to evolve.
Actually, we’re watching three fairly similar sequences appearing simultaneously on three separate screens. It’s like a multiplex of bad laws trying to shut down free markets.
Someone pass the Raisinettes!
India
In April, the Reserve Bank of India issued an edict that didn’t exactly criminalize crypto bourses, not did it technically make it illegal to exchange crypto for rupees. It did, however, make it illegal for those platforms to link to accounts at banks regulated by the RBI. You can still trade crypto for crypto in India. You can even buy and sell crypto using whatever foreign fiat currency you hold. You just can’t buy or sell it with rupees.
It didn’t take long for India’s local exchanges to find workarounds.
Most blatantly, some smaller exchanges decided that they were far enough below the radar that they could just keep doing what they were doing and the central bank simply wouldn’t take the trouble to enforce its own rule. According to CoinDesk, BitBNS and KoinOK simply flouted the law.
Other exchanges, including Wazirx and Coindelta, have circumvented the RBI ban by retooling as peer-to-peer platforms. You know, kind of like BQT.
So far, I haven’t found one instance where the RBI actually dropped the hammer on anyone for trading bitcoins for rupees.
What I have found is that Zebpay, perhaps the largest India-based exchange, decided to play by the rules. It has since announced it’s shutting down.
Which is too bad, because the RBI circular was never intended as anything but a short-term fix. India’s parliament is working on actual legislation that would take a deliberate approach to regulating crypto, possibly as a commodity, akin to the U. S. model.
China
Beijing is even more frothy-around-the-mouth than New Delhi when it comes to banning crypto — and is proving to be even less effective.
Not only is it prohibiting exchanges on its own soil or in connection with its own fiat currency, it actually moved in August to ban 124 offshore crypto exchanges from having any locus on the mainland. And, while India’s ban only applied to banks, China’s proscription applies to hotels, shopping malls and office buildings. ICOs are banned as well as exchanges. Social media and messenger apps are required to report chatter about crypto.
Of course, this is failing miserably. So Chinese nationals have to go abroad to invest in ICOs — and perhaps need to place those bets indirectly, like via exchange-traded funds. And the beauty of social media and messenger apps is their short expected life spans. They’re easy to spin up and, if the one you’ve been using is compromised whether by government sniffers or black-hat hackers, you can easily sidle onto another.
Chinese crypto enthusiasts have also discovered that such stablecoins as tether make for good proxies of reserve currencies, so what is effectively a dollar-denominated trade goes on the books as a crypto-to-crypto trade and thus more likely to be ignored by regulators. These players have also been in the forefront of using virtual private networks to hide their identities from regulators.
And, as in India, crypto account holders in China have discovered the advantages of peer-to-peer, decentralized trading — just as the BQT.io team has been telling anyone who’ll listen.
Colombia
Regulators in Bogota are keen to point out that cryptocurrency has never been banned in their South American nation.
When, in 2016, the Colombian government first began to focus on crypto, it took to treating the asset class as a financial security, and taxed its sale as capital gains. And that made as much sense anything else at the time. It still makes more sense than most regulatory regimes in this space even today.
So it’s legal to own, trade, issue and mine crypto in Colombia. FIFA stars, including James Rodriguez and Ronaldinho, are shilling their own branded coins there. So what’s not to love.
Selective enforcement. It’s as bad a practice as indiscriminate enforcement.
Colombia’s axe fell solely on Buda, a Chile-domiciled exchange that saw its neighbor to the north sever connections to 40,000 bank accounts. Bitcoin.com reports that no other exchanges were targeted by the July action, and provides no hint as to why specifically Buda was singled out. While it’s true that Buda had previously been caught up in embargoes by Brazil and Chile, these affected a swath of crypto exchanges. Colombia’s ban placed a bullseye on Buda.
Brazil and Chile were also swift in reversing those bans. Colombia’s interdiction of Buda’s business went into effect in April and is still in place. And, although Buda’s competitors have not been targeted, they might quickly amend that statement to “have not been targeted yet.” Colombian banks have been less than enthusiastic about forging relationships with any crypto exchanges.
As chilling as this embargo has been, though, it’s not likely to last long. Bogota welcomed a new administration in August, let by 42-year-old techno-geek Ivan Duque Marquez. Duque received a personal plea from Buda CEO Alejandro Beltran asking for his intercession. The president was non-committal, but his rhetoric suggests that he’s open to just about anything that provides a technology-based solution to his nation’s persistent economic issues. And when you live next door to Venezuela, you have a front-row view of how not to do it.
So I’m getting to the bottom of my bag of popcorn now, so let me just drive home the point for the world central bankers: You need to take whatever measures you want to regulate exchanges as there is the necessity of many of them. But if your game is to crush crypto at what you falsely believe to be its weak point, you will fail.
Alavida, zaijian and adios
Edward is an Ernst and Young Entrepreneur of the Year Finalist, Blockchain Enthusiast and visionary behind many successful organizations. An avid entrepreneur, Edward has a knack for designing distinctive business models complemented with superior technology to deliver unparalleled service and profitability. Edward also has been advising and consulting for various successful Blockchain technology and ICO projects and recently launched his own BQT.io P2P exchange helping traders connect with each other to leverage their crypto assets.
BQT has been in development since March 2017 and its ICO launched September 18. The information can be found online at BQT.io and on Twitter as @bqt_ico.