Skip to main content

Challenges Ahead for Cryptocurrencies

bitcoin-g7e2b5e032_1920

Cryptocurrency is being hawked as the way of the future, while physical coins and bank notes are being demonized as being the way of the past. Bitcoin and other cryptocurrencies have risen in value to cryptovalues far beyond comprehension. They have also been known to crash in tandem with nosedives experienced by the stock market.

There are advantages to cryptocurrencies when considering them against using cold cash. These forms of electronic value can be moved without any middleman, be it a bank or a broker, getting involved. Cryptocurrencies are anonymous. Transactions in such currencies are recorded on databases called blockchain, where the transactions are given a unique reference number. Names, addresses, social security numbers, and bank account information isn’t required.

This makes it sound as if the cashless society is not only on its way, but it will eventually replace physical forms of money entirely. This would mean no more fumbling for change, carrying bulky amounts of coins, or carrying large sums of cash. It also means bad guys would no longer be inconvenienced since there would be no need for large denomination bank notes governments have trying to squelch including the U.S. $500 and $1,000, the Canadian $1,000 and European Union €500.

If you think cryptocurrencies are the answer, then consider why Bitcoin millionaires in Great Britain can’t access their own money. Banks have been rejecting servicing digital currency traders, the banks indicating they don’t want to risk working with the money of individuals who may have gained their digital wealth illegally.

As an example, cryptocurrency hedge fund employee Vincent Fraysse reportedly turned a €3,000 or about £2,500 investment into £3.9 million. Fraysse was quoted in the Jan. 27 The Telegraph London newspaper as saying, “After finally finding a bank which would take me on as a client there was about seven months of vetting, then when I finally managed to get some money out and into a bank account that would actually allow me to use the money, the bank blocked the account to carry out more checks.”

A Google search of the question “How do I convert Bitcoin to fiat currency” was answered with the response, “Most cryptocurrency exchanges do not allow you to deposit funds using fiat money - however, some do. This is how it works: you deposit your Bitcoin into the exchange, then, once the exchange has received your Bitcoin, you can request a fiat currency withdrawal. The most common way to do this via a bank (wire) transfer.”

According to Coinbase, “…the MCC (merchant category code) for digital currency purchases was changed by a number of the major credit card networks that allow banks and card issuers to charge additional ‘cash advance’ fees—which could be as high as 23.99 percent—and which aren’t charged or collected by Coinbase.”

On Jan. 27 The National Law Review reported, “As the usage of Bitcoin, Ether, and other cryptocurrencies proliferates throughout the US economy, it may seem inevitable that a comprehensive regulatory regime will sprout up around these novel assets. Thus far, the regulation has been piecemeal, primarily limited to pronouncements from the Internal Revenue Service (IRS), the Securities and Exchange Commission, and the Office of the Comptroller of the Currency covering the individual aspects of cryptocurrency that fall under each agency’s purview.”

The Jan. 12 Forbes magazine headline “Crypto vs. China’s Digital Currency: Never The Twain Shall Meet” says it all regarding China’s attitude towards a currency system The Peoples’ Republic can’t monitor.

China is more interested in its government owned and controlled e-yuan. The e-yuan has been recently highlighted in the Alibaba owned newspaper South China Morning Post. According to the Feb. 4 issue, Zhongguancun Bank in Beijing and NewUp Bank in Liaoning each have permission from China’s central bank to suspend all cash services.

The article continues, “The suspension of cash services at banks have raised eyebrows in China, especially since the country’s central bank has repeatedly reminded ordinary merchants that they must accept bank notes and coins,” continuing, “Some private banks are also hoping to become so-called ‘internet banks,’ but they face multiple regulatory challenges given Beijing’s crackdown on the internet sector over the past year.”

On Jan. 28 the International Monetary Fund said El Salvador should dissolve the $150 million trust fund the nation created when it made Bitcoin legal tender and should return any unused funds to its treasury. El Salvador became the first country to adopt Bitcoin as legal tender (alongside the U.S. dollar) in June 2021. The trust fund was planned to allow the automatic conversion of Bitcoin to dollars, or in other words to convert an electronic value to a hard currency.

A Jan. 28 Associated Press report quoted IMF El Salvador mission head Alina Carare as saying, “What we emphasize in the report is that having a digital wallet, that allows people to make digital means of payment and keep their savings there, especially in US dollars, can bring benefits to the economy as well as to growth but again, I’m emphasizing US dollar because Bitcoin price is volatile.”