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Bitcoin price: why increasing global regulation could see it soar in 2023

Crypto regulation is increasing across the world. But embracing governmental frameworks could see Bitcoin soar with increased credibility.

bitcoin Source: Bloomberg

Bitcoin's price is by far the most tracked of all cryptocurrencies. With a market cap of $390 billion, the first crypto is worth more than double Ethereum, and is a clear blue sky above every other altcoin.

For many, whether right or wrong, that makes bitcoin the first port of call when starting to invest in crypto, especially if only to diversify a portfolio.

Of course, bitcoin has not enjoyed a good 2022. From a low of circa $5,000 in mid-March 2020, the crypto had soared to above $69,000 by mid-November 2021. But it’s since fallen by 71% to just above the symbolic $20,000 threshold.

Of course, many of the best blue-chip stocks have also seen significant price falls. But unlike equities, bitcoin still retains a credibility problem with the wider investing audience. However, 2023 could see this change.

It’s widely accepted that currencies in general need to fulfil six main criteria: they must be durable, portable, divisible, fungible, scarce, and widely accepted as payment. And while bitcoin generally satisfies the first five requirements, its acceptability as a payment method rather than just as a speculative investing instrument has historically been low.

But change could be coming. Fiat currencies, equities, commodities, fixed income and virtually every other investment are highly regulated. And regulation is coming both for bitcoin, and for cryptocurrency in general.

And far from being a net negative, increased regulation across the globe could be the push needed for mass adoption.

Bitcoin price 2023: global regulation

United Kingdom

The UK has just voted in favour of adding crypto to the scope of activities to be regulated via the proposed Financial Services and Markets Bill. New PM, and former Goldman Sachs banker, Rishi Sunak, has already enthused he wants the UK to become a crypto hub.

And encouragingly, the Financial Conduct Authority recently advised that instead of being wholly avoided, crypto should be limited to 10% of a ‘diversified portfolio.’

sec Source: Bloomberg

United States

Meanwhile, Securities and Exchange Commission Chair Gary Gensler is on record arguing that crypto investors should enjoy ‘similar protections’ afforded equity investors. More specifically, he thinks that ‘if a company builds a crypto market that protects investors & meets the standard of market regulations, people will more likely have greater confidence in that market.’

Currently, the US is attempting to decide whether bitcoin and over cryptocurrencies are securities akin to equities, or commodities akin to gold. Of course, most cryptos have hallmarks of both investment types, and some argue that the answer depends on whether a crypto operates on a proof-of-work or proof-of-stake protocol.

If they function as securities, then they will presumably come under the purview of the SEC. US Senator John Hickenlooper has already encouraged the regulator to establish rules to protect retail clients.

But if they’re commodities, they become the responsibility of the Commodities Futures Trading Commission. However, the CFTC only has power over derivatives and not spot markets, including exchanges.

But once the regulatory dilemma is resolved, there could be a flood of investment towards bitcoin as retail clients feel safer with regulatory protections.

European Union

Then there’s the European Union to consider, which has finally agreed a text for the unified licencing regime which will regulate crypto exchanges including Binance and Coinbase. The idea is that all exchanges will be able to operate seamlessly across the borders of the 27-member club of states within its Crypto Regulation Framework.

Asia

Even in places in the world which have historically been anti-crypto may be changing their stances.

India’s Central Bank has previously compared crypto to Ponzi Schemes, and the country’s Directorate of Enforcement has recently frozen both WRX and Tether under India’s Prevention of Money Laundering Act. But regardless, according to UN Trade and Development data, more than 7% of Indians owned crypto in 2021.

Meanwhile, China imposed an often-ignored full crypto ban earlier this year. But in Hong Kong, the head of fintech at the Securities and Futures Commission, Elizabeth Wong, has told investors that the government is considering allowing individuals to ‘directly invest into virtual assets.’

This could see the repeal of the 2018 licensing scheme which limits crypto investments to institutional clients with at least $1 million in their portfolios.

It could be that this conciliation is regarded as a requisite to bring fintech clients back to the city who have been leaving in the wake of Beijing’s crackdown on the one country-two systems power.

Saudi Arabia

The Middle East is populated by religions which have iron-clad rules over how financial activities should be conducted. Accordingly, it has taken a particularly wary view of digital assets.

But Saudi Arabia could be leading the charge for change. While Riyadh has previously officially banned banks from processing crypto transactions, unofficially there are multiple workarounds and loopholes.

But with United Arab Emirates reportedly planning to become the region’s crypto hub, signs point to a loosening of restrictions in Saudi, in order to compete.

Some Arab scholars are now proposing that spot trading crypto is a halal practice. Moreover, its banking regulator, SAMA, has appointed Mohen AlZahrani to lead its virtual assets and CBDC program to bring crypto exchanges to the Kingdom.

Binance has increased its staffing in Saudi in response. And the Kingdom is also planning to create a multi-regional CBDC called ABR, alongside six commercial banks.

Kucoin research shows that 14% of the country’s population owns crypto-assets or have traded them over the past year.

International Monetary Fund

Finally, there’s the International Monetary Fund’s World Economic Outlook Update Report to consider, which encourages that while the crypto market has experienced a ‘dramatic sell-off…spillovers to the broader financial system have been limited so far.’

IMF director of monetary and capital markets Tobias Adrian has advised that stablecoins remain a threat, warning that Tether (USDT), the third largest coin by market cap, has ‘some vulnerability there, because they’re not backed one to one… some of the stablecoins are not fully backed by cash-like assets.’

The director expects regulators globally will target exchanges and wallet providers rather than cryptocurrencies themselves in order to bring in further regulation.

And as this regulation increases across the world, Bitcoin could see its acceptability and credibility rise, and with it, its fortunes for 2023.


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