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- Insider spoke to CoinShares’ James Butterfill about the future of regulation.
- Governments can’t really ban crypto, so they are struggling to stay relevant with central bank digital coins, he said.
- Regulatory measures are feeding Bitcoin’s volatility and the market needs clarity, Butterfill said.
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Regulators around the world are tightening the screws on cryptocurrencies, but better oversight and transparency are the only way the market can move and evolve, according to CoinShares investment strategist James Butterfill.
After sustained crackdown in various countries against Binance, a crypto exchange, and China’s tough restrictions on Bitcoin mining, CoinShares’ Butterfill said it was really up to regulators to offer clearer guidelines and better definitions for the market.
“I think Bitcoin is having an identity crisis. It’s the birth of a new asset class and both investors and regulators are struggling to figure out where to place them and how to categorize them,” Butterfill said in an interview with Insider this week.
CoinShares is Europe’s largest crypto asset manager. The company had $ 3.35 billion under management at the end of the first quarter, according to its latest earnings report.
He explained that the lack of clear definitions for the asset – such as whether regulators and tax authorities treat it as a currency or a security – means that changes or developments on the regulatory front are causing the price to fluctuate sharply.
“When new regulation comes, Bitcoin tends to be volatile because people don’t know how it will affect the crypto space,” he said.
“As an investor, being able to categorize different assets is important. When you make investment decisions, you create an economic construct of the world and say, ‘Okay, I can see what works in this economic area.’ ‘Construct’,” Butterfill said .
How do you define Bitcoin?
For example, in the United States, the Internal Revenue Service calls it taxable property. The Commodities Futures Trading Commission says it is a commodity and the US Securities and Exchange Commission has no official clarification.
“With something like cryptocurrencies, it’s not one of them, it’s its own business, owning a distributed peer-to-peer money book. And to take that further, it’s a diversified, non-government asset … So, it’s definitely warranted in its own asset class and all regulators are slowly discovering this, “Butterfill said.
He said regulators need to deal with cryptocurrencies, not ban them, as this will only drive people to “more nefarious places to buy bitcoin.”
“The only way to essentially ban it in the end is to cut the internet off,” he said. “It’s a bit like cutting off your foot to brave your toe, and it has a big economic impact, so it’s not really practical from that point of view. I think most of them decided, ‘let’s get CBDCs to market,’ ”he added.
Central banks and the digital world
A number of major economies are researching digital versions of their own currencies, and many are aware of the risks associated with standard cryptocurrencies like Bitcoin or Ether.
China is experimenting with its digital yuan and the Federal Reserve and Bank of England are exploring the possibility of their own central bank digital currencies (CBDCs), while European Central Bank President Christine Lagarde has expected a digital euro in the next four years .
The future of central banks and digital currencies is not just doom and gloom. El Salvador has already made Bitcoin legal tender and the Bahamas has a functioning CBDC.
“We could see people using crypto alongside their own native currencies, or we could see more countries in developing countries like El Salvador starting to adopt Bitcoin as a currency instead,” Butterfill said.