“Let’s form a committee to explore the formation of an exploratory committee!”
OK, that’s not quite a fair summation of the recommendations on cryptocurrency that came out of the G20 meeting of finance ministers last week. But it’s safe to say the globally unified policy that the world’s economic leaders are now seeking could be a long time coming if it comes at all.
And whether such coordination would be a positive for the crypto community is also questionable.
For those who were too transfixed on bitcoin’s price gyrations to pay attention to the bureaucrats gathering in Buenos Aires (I don’t blame you a bit), here’s a quick recap.
The member nations present agreed that cryptocurrencies needed to be examined, but that more information was required before any regulations could be proposed, according to the press briefing by Argentina’s central bank chief, Frederico Sturzenegger.
While that sounds like punting, the members did set a firm deadline in July for recommendations on what data is needed, Sturzenegger told reporters.
Once you’ve digested that, here’s one more spoonful of alphabet soup: In its report to the G20, another intergovernmental body, the Organization for Economic Co-operation and Development (OECD), called for cooperation on studying the tax consequences of cryptocurrencies.
In addition to moving slowly (much slower than the rapidly evolving cryptocurrency markets), the G20 faces other limitations. It can only make recommendations, not set policy, for sovereign nations, and you don’t have to be Steve Bannon to be thankful for that.
And while the G20 includes some big countries, absent are some of the most vocally blockchain-friendly jurisdictions, such as Switzerland, Singapore, Gibraltar and Bermuda, a fact which may further limit the impact of any cooperation among the members.
So, is a globally coordinated policy even possible in the best of times for international cooperation, much less the age of Trump and Brexit?
John Collins, the president of consulting firm Red Flag USA and former head of policy for crypto exchange Coinbase, thinks so.
While there will always be outlier jurisdictions, “to the extent you want to play in the biggest markets in the world, those tend to be the supporters of these international standards,” he said.
As for resurgent nationalism’s threat to global coordination, Collins noted that in this case, cryptocurrency – a technology that knows no borders – “is inherently inconsistent with most nationalist tendencies – which is usually based in sovereign control.”
One successful example of international cooperation Collins cites is the Financial Action Task Force (FATF), an intergovernmental body dedicated to fighting money laundering and terrorism financing.
Countries that don’t follow FATF’s extensive standards (somewhat euphemistically called “recommendations”) for anti-money-laundering (AML) and counter-terrorist financing (CTF) policies get put on a blacklist of “non-cooperative” countries. Aside from losing face, that means residents of a country may have a harder time opening foreign bank accounts or sending money abroad, and may even pay higher interest rates for financing.
Indeed, in Buenos Aires the G20 pledged to implement the FATF standards “as they apply to crypto-assets.”
Now, note the awkward phrasing there. “As they apply to.” The current FATF standards do not address cryptocurrencies. While the FATF has issued guidance on the matter, that’s not the same thing. Only the standards have teeth.
By applying general standards written for the traditional financial system to the brave new world of crypto, the G20 is “taking a circular approach to mitigating AML and CTF around digital currencies and isn’t really addressing digital currencies at all,” said Christine Duhaime, an AML lawyer in Canada who advises digital currency companies.
Nevertheless, the power of the blacklist shows that these transnational bodies can have a strong influence. Another example cited by Collins is the Basel Committee standards for bank capital.
“It’s certainly not easy and the Basel process is particularly deliberative, but it’s certainly not impossible,” Collins said. “And it’s important to remember that, in the case of Basel for example, particular countries who tend to object or slow down these processes, often have deep-rooted and massive industries that they are attempting to protect.”
Yet cryptocurrency, for all the progress it’s made, is neither massive nor deep-rooted, so the industry might not be able to lobby against governments adopting international standards as successfully as, say, small banks in the U.S. fought adoption of the Basel II standard in the early 2000s.
Consistency vs. control
All right, so a global policy on crypto is theoretically possible – but should the community welcome it? According to Collins, who is also a former Senate staffer, it depends on your business model.
In countries such as the U.S. and Japan “that instituted regulatory clarity around exchanges – those businesses centered in those countries have done exceedingly well,” he said. “It gives confidence to users and investors, which is good for the industry.”
But Collins acknowledged that this isn’t just any industry, but one “whose core [goal] is decentralizing power structures.” Hence, “industry compliance and coordination is even more difficult than it is in other competitive industries.”
As someone who appreciates that guiding philosophy of decentralization, I felt a bit of a chill when Collins described a possible future scenario.
“The question will be at what point the policy levers move from the entry and exit points to the financial system [i.e. exchanges where crypto is traded for fiat] to the underlying protocols themselves,” he said. “If that ever happens, that will be a different paradigm that crypto businesses, whatever their model, will likely need to address head on.”
Regulating the protocols? Say what you will about Bannon, thoughts like that make me think it’s good to have such a firebrand in crypto’s corner.