Governments are still grappling with how to respond to the rise of cryptocurrencies, leading to different responses from regulatory authorities.
On the one hand regulators in Thailand and China have taken a hard line, either banning the trading of Bitcoins outright, or, in the case of The People’s Bank of China, preventing financial institutions from handling Bitcoin transactions and, most recently, taking deposits and offering clearing services in the cryptocurrency.
On the other hand, the German authorities have recognized Bitcoin as “taxable private money” while the Swiss Parliamentary Group for Digital Sustainability (Parldigi) has submitted a proposal for the country to recognize Bitcoin as a foreign currency, arguing that it and other cryptocurrencies present opportunities as well as risks to the country’s financial sector. Some 45 members of the Swiss parliament support the proposal.
Although some commentators see the PBOC’s recent interventions as a setback for Bitcoins, others argue that they do not pose much of a threat. “China was really just affirming that deposit balances are not covered under their financial and banking insurance schemes,” says Jon Matonis, executive director of the Bitcoin Foundation.
Chris Skinner, chair of the UK’s Financial Services Club, says that the value of Bitcoin has increased dramatically in the past six months, particularly because Chinese consumers are seeing it as a way of moving money in and out of China for goods and services. “That is allowable, according to the announcement,” he says. “The currency itself has been attacked non-stop ever since it started, and it has survived all those attacks quite well. It will survive this one just as easily – I don’t see anything stopping it right now.”
Indeed, Nicolas Genko, founder of BTC-Consulting, says the PBOC’s moves are actually good news as they recognize and legitimize the trading of Bitcoins in China.
“They are defining what Bitcoin is and they are saying that people are free to trade it,” says Genko. “No one expected the Chinese central bank to say that Bitcoin could be used as a currency.” He adds that whereas Bitcoin used to be traded predominantly in US dollars, more than half of Bitcoin volumes are now traded in renminbis.
It is not just governments and regulatory authorities that are recognizing the importance of Bitcoin and the broader rise of cryptocurrencies. Bank of America Merrill Lynch became the first big bank to publish analyst coverage of the Bitcoin currency, in a report this month entitled “Bitcoin: a first assessment”.
The report said Bitcoin “could become a major means of payment for e-commerce and may emerge as a serious competitor to traditional money-transfer providers”. BAML suggested that the maximum fair value of Bitcoin is $1,300, but that “the 100-fold increase in Bitcoin prices this year is at risk of running ahead of its fundamentals.”
Despite the obstacles, Bitcoin is attracting a lot of interest and might one day be adopted by multinational corporations, providing the ability to move cash internationally outside of the banking system. “There’s certainly a very interesting use case from the perspective of a corporate controller to have the ability to send fund transfers cross-border without the potential for delays and the different FX impacts,” says Julie Conroy, research director at Aite Group.
Applications for corporations could extend beyond the use of Bitcoin itself. “A lot of people are trying to innovate on top of Bitcoin,” says Genko. “There are about 30 other coins – some successful and some not. In fact, corporates could also implement their private money systems and offer their own virtual currency for their clients – so that if you paid with Walmart coins, for example, you might pay 10% less than if you pay with US dollars.”
Although Conroy does not think it likely that Walmart coins will become a reality, she points out that other equivalent schemes already exist, citing airline miles as well as Linden dollars and other currencies that exist in the world of online gaming.
Corporations issuing their own money might or might not materialize – but many believe that Bitcoin itself might take on a more mainstream role in the coming years. “The contention is that potentially, yes, Bitcoin or its equivalent could be used in trade on the high street,” says Skinner.
For the time being however, Conroy argues that Bitcoin is “not yet ready for prime time because it doesn’t have some of the controls that you need to make sure that it isn’t being used for illicit purposes at this point”.