Crypto has seen plenty of gains in 2021; with every other crypto enthusiast reiterating it’s headed “to the moon” and other jargon indicative of an overinflated bubble, there is cause for concern. Governments around the world are getting cold feet about a deregulated people-controlled asset, and China is claiming that crypto mining is terrible for the environment. What’s next? Will crypto make it into 2024, or will governments crack down and ban it, causing the collapse many have warned about? Is crypto a safe investment, or is it all hype? Let’s review the risks of this high-risk investment and remember to monitor developments continuously.
The EU Commission has proposed regulating with a “MiFID light” system, regulating issuers and service providers. Some believe this regulation will legitimize digital currencies, but others aren’t so sure. The proposal is part of the EU digital finance package targeting utility tokens, stablecoins,ande-money tokens. The regulation defines crypto assets as “a digital representation of value or rights which may be transferred and stored electronically, using distributed ledger technology or similar technology.”It’s a broad definition intended to include as many varieties of crypto assets as it can.
China’s inner Mongolia region plans to ban new crypto-mining projects while shutting down existing ones to reduce energy consumption. When transactions are recorded on a public ledger called the blockchain, they need to be verified by miners. Miners use a lot of computing, which uses extreme amounts of electricity. Bitcoin mining consumes an estimated 128.84 terawatt-hours per year of energy — more than entire countries such as Ukraine and Argentina (according to the Cambridge Bitcoin Electricity Consumption Index, a project of the University of Cambridge).
China handles around 65% of all bitcoin mining globally — inner Mongolia alone accounts for about 8%. The United States accounts for 7.2% of global bitcoin mining.
China’s central bank, the People’s Bank of China (PBOC), has studied crypto for over three years. They set up an Institute of Digital Money within the PBOC. When Zhou Xiaochuan was governor of the PBOC, he addressed the current regulatory status of virtual currencies in a press conference in March 2018. During that conference, they determined that Chinese regulators would not recognize virtual currencies as a currency for broad use or retail payments.
“The banking system is not accepting any existing virtual currencies or providing relevant services.” – Zhou Yongkang.
According to the announcement, the sale and circulation of crypto tokens is public financing without approval, which is illegal. In 2020, Bitcoin purchased from Chinese banks increased, but then in 2021, the CCP (Chinese Communist Party) said they would crack down on cryptocurrencies due to the large amount of power the miners consume. During the weekend of April 17-18, 2021, a coal mine flooded, which caused power outages in an area where Bitcoin mining is prevalent, and one-third of all Bitcoin’s computing power was shut down for the weekend. This illuminates just how much power influences the price of the coin, and some claim the drop from 65K-55K that Sunday was due to these outages. That’s a lot of influence, to billions of dollars.
The Ministry of Finance published a draft law on digital financial assets in Russia on January 20, 2018. The bill defined “mining” and considered mining an entrepreneurial activity subject to taxation when the miner exceeds the energy consumption limits. The bill included fines of up to 15 % of annual turnover for infringements. In 2020, Russia gave crypto legal status, but not for purchases. Later, they banned officials from owning crypto. There is an up-and-down trend for crypto in Russia, with more information to come in 2021.
There has been a lot of uncertainty with crypto in India, too; top government officials are referring to crypto as a Ponzi scheme. That said, India wants to ban the currency while creating their version. They don’t have a problem with the technology and are determined to use blockchain, just not any existing digital currencies. As of March 2021, they are still undecided about it.
I’m always talking with people who are bullish about crypto, but I remember the days, back in 2014 and 2015, when crypto was the unregulated free trade safety from the establishment currency. The US has already proposed laws to tax crypto earnings, and the current administration vows to increase capital gains taxes, making crypto appear to lose that free flow of trade it once boasted. In the US, it doesn’t help that the current treasury secretary is anti-crypto; Janet Yellen has consistently attempted to tie crypto to illegal transactions. It’s hard to disagree when more and more scams are coming out, and victims are telling their stories of having sent crypto for ransom payments, romance scam payments, and other nefarious endeavors.
There is a future for crypto, but it’s hard to say which coin will be the one. Maybe governments will ban all the existing borderless ones and create their own to replace them, thereby establishing control and regulation, the lack of which is one of the ideals crypto stands for. I think running after the hype to invest in the excitement is bubble behaviour, so beware.
I wrote about Crypto being a potential bubble in Is Crypto a Bubble. I don’t remember the dot-com era as well as older people do, but I do remember 2007 when everyone in Florida insisted that buying a house was the best investment. That didn’t work out very well for them then, but later, after the crumble, the houses went down in price and became a good investment. Sometimes, it’s wise to watch and wait.
Only invest what you’re willing to lose, and please understand that at any moment, your values could be reduced by more than 30%. This is not the time to sell unless the company that owns the coin is found to be a Ponzi scheme or is being closed down, and that’s the risk you take in holding new kinds of investments. If the company that owns the coin is okay and you have done your due diligence, then stick with it, but do understand there are going to be a lot of ups and downs these next few years. I predict that eventually, the control will be back in the hands of the governments and banks. Until then, do what you feel is right; follow that gut feeling and be a critical thinker. I’ll follow up with this post in 2024 because I’m not sure about the future of crypto right now. My brother and friends are still investing, but many have tapped out.
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Disclaimer
I want to make it unequivocally clear that I do not promote any cryptocurrency, nor do I endorse any crypto investments. This website is dedicated to providing information and insights into the world of cryptocurrencies to help you better understand what crypto is.
If you ever find yourself in a position where you need to explain your decision not to invest in cryptocurrencies to friends or acquaintances, you can use the content on this site as a guide to discourage people from falling victim to scams or making hasty financial decisions. My ultimate goal is to empower individuals with knowledge and awareness so that fewer people become financial victims.
Life is already challenging with its inherent obstacles; we don’t need the added burden of unscrupulous individuals looking to exploit our hard-earned money. Stay vigilant, stay informed, and make financial decisions with caution. Your financial well-being is of paramount importance, and it is my sincere hope that the information here can assist you in making prudent choices.
