The ultimate form of regulations might be one of the most expected things in the crypto ecosystem after Bitcoin ETFs which will be concluded in January 2024. The unclear classification of cryptocurrencies, which are too diverse and hard to put in shape, makes it harder for policymakers to label them.
Though crypto products are exclusively unique, tech-based, decentralized and powered at the top of a blockchain, the governors need to filter the connections with the real world to keep people secure (!)
Bitcoin, Litecoin, Bitcoin Cash, Ethereum (?) and many other cryptocurrencies are close to be viewed as digital commodities but there are also securities in the ecosystem. In the near future, we will likely see a checklist by the SEC that help us decide what is a security and what is not.
Apart from all these ambiguous legal stuff, the Achilles' heel in crypto is not actually a crypto; rather, it is an encrypted form of fiat money: stablecoins.
Who Prints Money Controls the Ecosystem
So far we have a couple of strong stablecoin issuers such as Tether, Circle, Paxos and many others. These stablecoin issuers lock a certain amount of USD in their bank accounts or buy Government Bonds with the money and issue crypto form of $1 for each banknote.
In this flow of organization, there is a middleman between the requester and the FED, issuer of USD in the world. If the current system is sustained, the money will be used by a third party rather than the Central Banks themselves. If we consider the growth potential of the crypto ecosystem, do you think these middlemen can be tolerated?
You will recall some of the headlines such as Bloomberg
Or we may remember some headlines in Coindesk
Fight against Terrorism Coindesk
The stablecoin issuers may go through a deep investigation and they may also face a couple of billion dollars fines like Binance will pay.
The issuers may survive if
- They keep USD in banks operating in the U.S
- Keep a certain amount liquid USD
- Report every transaction clearly
- Pay for management fees etc.
Stable FUD Feeds Bitcoin
This is not the first time we may face a stablecoin FUD. Since 2017, I have witnessed at least 5 - 10 big FUDs around stablecoins though only 2 - 3 of them came true like UST and USDN.
When people who hold stablecoin are fearful, they try to cash out a limited portion of the money as they cannot move them all at once but they choose to buy Bitcoin as it does not face the same problem.
Have a look at the charts from Coinmarketcap Data:
This is one of the examples when we had a FUD on a stablecoin.
While a brand new Stablecoin FUD is brewing, I'll be looking for ways to get prepared for that case. Remember: Tether survived terrible cases and it became more transparent and USDC, Circle, is an association of Goldman Sachs. These giants do not collapse but they may suffer like Binance does.
I am thinking of standing in my HBD stablecoin bag or adding some more altcoins, as well as Bitcoin, to my medium term crypto bag that aims Q2 2024. Also, cashing some USDT out might be a good idea because all countries will be focusing on taxation of cryptocurrencies in a new way that would not scare investors but also make decent returns for the government treasuries.
What ways can retail crypto investors follow to get prepared for a possible stablecoin FUD?