In March 2018, some of the banks in the UAE – United Arab Emirates – decided to ban online trading transactions involving cryptocurrencies, but interestingly, not in the case of licensed brokerage companies, namely Bitcoin and Ethereum. Reading between the lines, what we appear to be witnessing is a tiny reflection of the cryptocurrency global identity crisis. The volatility of the index borders on volcanic, which further reinforces the notion that crypto is just another heavily disguised Ponzi scheme. It’s quite remarkable that in the UAE, any form of gambling is forbidden, and yet, buying and selling Bitcoins could easily be seen as a high-risk gamble.
The bitcoin utopian ideal of peer-to-peer transactions without centralised interference is rapidly fading into a naive pipe dream. However, if the crypto landscape can stabilise, and acquire a defined asset status, the very least we should expect is a more competitive banking sector – maybe that’s at the core of the fiscal discomfort surrounding it. Regulation is seemingly inevitable, regardless of the resistance to it. Huge media pressure is being applied by the news focus on fraudulence, money laundering prevention, and funding terrorism. Unfortunately, the anonymity that cryptocurrency offers is inadvertently a haven for the criminally minded. These unsavoury elements are most definitely unwanted, but surely existing criminal law covers this kind of activity. It is glaringly obvious that some kind of standards authority is necessary, but whether that’s a central bank remains to be the contentious obstacle.
At the beginning of 2018, Korean exchange Coinrail, suddenly announced a digital intrusion – a hack – which undermines the whole case for deregulatory banking freedom. Luckily, Coinrail had about 70% of their holdings in a cold wallet, and they also managed to recover two thirds of the remainder. However, this means that roughly 10% is missing, presumed stolen. Undeniably, the industry is collecting an unenviable catalogue of catalytic meltdowns, causing chaos that continually damages the market. In an ideal world, justice must, and should, be metered out to those responsible for the crime. Arguably, regulation may well help to ensure that an exchange system software maintains its integrity, but the fundamental promise of the anonymity and freedom of cryptocurrency seems to be hampering the pursuit of a better security solution.
Coincidentally, to combat criminality, banks are operating a government backed programme that is designed to create a hostile environment for money launderers. ‘De-risking’ is a bank policy which simply means identifying and terminating accounts that could potentially have reputational consequences, or high credit risk banking relationships. Banks have commercial freedom to choose who they do business with, and so account holders deemed to be at risk of falling prey to fraudulent transactions that use unsecure methods will find their accounts deactivated. Of course, huge fines levied by the banking regulators might have something to do with this trend. Whether cryptocurrency falls into this threat category is unclear, but the survival of virtual money is in the balance.