European Commission causes crypto shock!

Early yesterday, the European Commission regulators declared that they were “banning anonymous cryptocurrency wallets” as part of a money laundering crackdown. The shockwaves rippled through the markets and probably caused some near heart attacks for a few crypto holders.

Thankfully, it soon became clear that the EU had not been quite clear about the substance of its proposed regulation. It is one of four proposals intended to “to strengthen the EU’s anti-money laundering and countering terrorism financing (AML/CFT) rules,” as its press statement says.

The statement also says:

“At the heart of today’s legislative package is the creation of a new EU Authority which will transform AML/CFT supervision in the EU and enhance cooperation among Financial Intelligence Units (FIUs). The new EU-level Anti-Money Laundering Authority (AMLA) will be the central authority coordinating national authorities to ensure the private sector correctly and consistently applies EU rules. AMLA will also support FIUs to improve their analytical capacity around illicit flows and make financial intelligence a key source for law enforcement agencies.

In particular, AMLA will:

  • establish a single integrated system of AML/CFT supervision across the EU, based on common supervisory methods and convergence of high supervisory standards;
  • directly supervise some of the riskiest financial institutions that operate in a large number of Member States or require immediate action to address imminent risks;
  • monitor and coordinate national supervisors responsible for other financial entities, as well as coordinate supervisors of non-financial entities;
  • support cooperation among national Financial Intelligence Units and facilitate coordination and joint analyses between them, to better detect illicit financial flows of a cross-border nature.”

Unfortunately, Mairead McGuinness, the EU Commissioner for Financial Services, tweeted that the measure “will ban anonymous crypto wallets and make sure that crypto-asset transfers are traceable.” But, as David Z Morris writes, “The statement from McGuinness is straight-up FUD.”

The EU is not proposing a ban on anonymous wallets; instead it is proposing tighter rules on money service providers, such as exchanges or custody services. Morris explains, “In short, the ban would impact the crypto equivalent of Swiss bank accounts, not the use of crypto as cash.”

What Morris also pointed out is important: media outlets reported McGuinness’s tweet without checking the veracity. As a consequence crypto prices slumped, although they have recovered since. However, he does say, and this is important: the EU knows it can’t ban anonymous wallets, so why would a Commissioner tweet misinformation? He suggests, “by obfuscating the difference between custodial wallets and self-custody software, they may hope they can mislead some portion of the public into thinking that custodial accounts are the only kind that exist.”

The upshot of all this is “if you’re willing and able to self-custody, which you should be doing anyway, you can still hold and spend crypto anonymously.

Europe and UK offer fintechs a strong base for success

Don’t let the current crypto market news depress you; things are not as bad as they seem, especially if you are able to look at the bigger picture around cryptocurrencies.

According to media reports, in April 2021, the cryptocurrency market topped $2 trillion of valuation for the first time, and Bitcoin’s market value was sitting at 1.15 Trillion dollars. Bitcoin registered a crucial growth in the last six months, equivalent to a 450 percent rise, and Bitcoin and Ethereum have also been witnessing huge rallies this year.

Add into this mix the fact that cryptocurrency has rapidly gained popularity and has begun affecting the economy of some countries and you have a promising outlook.

An interesting report IBS Intelligence shines a light on the European fintechs that are doing well, as does an article in today’s Guardian that reveals a growing level of value in the UK’s digital finance industry, which has just passed a “multibillion-pound peak of investor interest.”

IBS Intelligence claims that the four fintechs currently performing well across Europe are Luno, Wirex, Ziglu and Bitcoin Suisse – two of them (Luno and Ziglu) are London based.

Luno is a global cryptocurrency co-founded by CEO Marcus Swanepoel and CTO Timothy Stranex. Its products and services aim to make it safe and easy to buy, sell, store and learn about cryptocurrencies like Bitcoin and Ethereum. Last year, the Securities Commission (SC) of Malaysia gave Luno its approval to operate as a recognised market operator (digital asset exchange), and the fintech now has hubs in Singapore and Cape Town. It has grown significantly in recent years, with nearly 400 employees and more than five million global customers spanning over 40 countries.

Wirex is already well known. It is a digital payment platform and regulated institution that developed a contactless payment card giving users the ability to seamlessly spend crypto and traditional currencies in real life.

Ziglu was founded in London in 2018 and is a cryptocurrency venture that aims to offer exchange services at interbank rates and at the same time, facilitate the purchasing of cryptocurrencies through various exchange platforms. It has a Peer-to Peer payment app that enables Ziglu customers to instantly send or receive any currency from any contact within the challenger’s community. Significantly, the founders of this enterprise come from Starling Bank, one of the strongest British challenger banks.

Bitcoin Suisse is a Swiss-based financial services and technology services provider that offers trading, brokerage, storage, staking, collateralized lending, and crypto financial solutions. Payments supplier, Worldline recently entered into a partnership with Bitcoin Suisse in a bid to provide crypto payment services to Swiss merchants and consumers.

Meanwhile in the UK, Revolut confirmed last week that it had raised another $800m from big investors including the Softbank Vision Fund, taking its valuation to $33bn. It came just weeks after Wise, the forex transfer business listed on the London Stock Exchange for £9bn.

There is, the Guardian reports, a high level of private investor interest in fintechs. “I’m very positive that we will see additional and similar success stories in the UK coming down the track,” said Janine Hirt, chief executive of the UK’s fintech lobby group Innovate Finance. She added, “British fintech firms continue to attract huge amount of international investment, second only to the US,” largely because most business is done in English, it has access to top tier universities, a diverse talent pool and has strong support from regulators and government.

Brexit may be a deterrent for European talent wishing to work in British fintechs, but the sector is working hard to push the government to secure greater access to international markets for UK fintech firms – particularly a post-Brexit EU – in a way that will make it easier for them to go global. That seems likely to happen given the UK and Europe’s glowing future outlook for fintechs.

Smart investors check out a crypto’s utility

There are somewhere in the region of 4,000 cryptocurrencies to invest in, each representing a different blockchain project. When investment experts look at the array available, they don’t base their choice on price, they look at the utility.

When the exeperts talk about Utility, they are referring to digital tokens built on a specific blockchain ecosystem – most often based on Ethereum’s ERC-20 standard – which grants token holders certain rights. As Katharine Wooller, UK and Ireland managing director at crypto wealth-building platform Dacxi told Rich McEachran, “Any cryptocurrency is only as good as its use case.”

There is a tendency amongst investors to buy Bitcoin simply because it is the most famous cryptocurrency. But Bitcoin’s utility is limited to promoting financial inclusion and cross border payments. Ethereum on the other hand is the preferred ecosystem for building cryptocurrency projects. So, it is not hard to figure out which of the two has more long-term potential.

One of the issues facing investors, particularly retail investors, is that the digital assets they hear the most about and are therefore drawn to, are the “cryptocurrencies addressing or solving specific problems on a macro level,” says Roman Matkovskyy, an associate professor in finance and accounting at Rennes School of Business. But there are many, many more that offer solutions to more ‘micro’ questions. As Wooller says, “it’s essential to do your homework and spend time researching and analysing a coin’s long-term intended use,” usually via the project’s white paper that should be freely available online.

Of course, a coin may appear to have great utility, but that doesn’t guarantee it will be successful. What is required for that to occur, is demand for the coin’s ecosystem. Let’s not forget that there are over 2000 coins that have come and gone, their related projects dead due to lack of demand.

The meme coins, such as Dogecoin, are a good example of complete lack of utility. Yet, investors have poured money into them, resulting in a 12,000% gain for DOGE between January and May 2021. They may look good right now, but they won’t last, as they serve no purpose. Dogecoin was started as a joke, and that should really tell you all you need to know. Still, people buy DOGE because they hope for its value to skyrocket. It’s speculation rather than investment.

Where should you look for long-term investments?

For long-term gains based on utility rather than making a quick profit, experts point to Ethereum (ETH) as the top choice, because it provides a platform for developers to create apps and run them on a blockchain without the involvement of third parties.

Paddy Osborn, managing director of the London Academy of Trading, suggests three others with potential: Polkadot – a network that can support multiple different blockchains and enable them to work together; Internet Computer, which aims to disrupt the internet space by building a decentralised web platform that runs on a blockchain and vechain, which helps companies track their products safely and securely through each stage of the supply chain.

To conclude, nothing is certain, but if you’re looking for a solid, long-term investment, look for the cryptos that are showing the greatest level of user adoption and functionality.  

Read this before October 2021 if you’re in crypto!

For those of us who believe in the concept of decentralization that underpins Bitcoin, I believe we are shortly going to receive a shock in the form of new regulations. The wealthiest countries in the world are snapping at the heels of the crypto universe and are looking at ways they can use financial regulations to bring fintechs, exchanges and crypto owners into line.

What do governments want to restrict?

Here’s a list of ‘things’ they are planning to target:

  • Peer-to-peer transactions
  • Stablecoins
  • Private wallets (phone, desktop, cold storage)
  • Privacy (privacy coins, decentralized exchanges, TOR and I2P)
  • Former ICOs & future projects (NFTs, DeFi, smart contracts, second layer solutions and more)

What is their intention?

At it’s most basic, you could say that they want to know EVERYTHING!

They want to:

  • Businesses active in crypto to be licensed and regulated like banks
  • Ensure full transparency for all transactions
  • Have the ability to freeze crypto assets belonging to persons or countries they believe are a ‘risk’
  • Force the disclosure of user information for all transactions
  • Revoke licenses of any that don’t comply with regulations.

They want control of a space that emerged precisely as a reaction to government and bank controls on money, both of which allowed a global financial crash to happen in 2008.

Why do governments suddenly want more regulations?

The answer is fear. Wesley Thysse in his document “Government Planning Worldwide Regulation of Bitcoin”, he points to one event that suddenly made them sit up and take real notice of cryptocurrencies, and that was Facebook’s 2018 announcement that it intended to create and launch a ‘so-called’ stablecoin. As Thysse says, “Until then they didn’t see cryptos as a risk to the global financial system.”

Why did Facebook’s Libra coin, as it was called at the time, send a ripple of unease through wealthy governments? Because Facebook’s billion users would have access to an instant payment system that was faster and more importantly cheaper than anything offered by the existing financial system.

Governments and the central banks huddled together in talks about what to do, and engaged an organization called Financial Action Task Force (FATF). Its goal is “to protect the integrity of the global financial system.” A real Big Brother!

FATF has already passed similar legislation for global governments, and it is the organization behind the rule insisting that all cryptocurrency exchanges that exchange fiat for crypto have the same KYC and anti-money laundering requirements as banks. What they will do now is turn their attention to all the elements of the industry outside this kind of control and as Thysse says, “declare what is, and isn’t acceptable.”

In 2018 FATF set out to control money laundering and terrorist financing, but now it is going much farther, and they are making swift progress. The document anyone in the crypto space should be looking at right now is FATF’s ‘Guidance for a risk-based approach to virtual assets and VASPS’ (GVA). This is due to be implemented in October 2021. Furthermore, it is impossible to move FATF out of its powerful position, because the organization is protected by the Vienna Conference on Diplomatic Intercourse and Immunities, which means they enjoy immunity with regard to their actions and are unburdened by the rules the rest of us must live by.

The so-called public consultation on the GVA was a farce, as they only chose the feedback that suited their agenda. They have delayed the implementation of the GVA until October, but after that expect to see their recommendations being implemented at national level, and in our legal systems. You should also note that the GVA will not apply to central bank-issued digital currencies. So, the agenda is very clear!

It may not be all bad news

As much as those dedicated to crypto may be horrified by all this, let’s take a moment to look at a possible upside: regulations may just pave the way for mass adoption, something the crypto community has long been waiting for. But at what cost? However, I urge you all to read the FATF GVA, because in just a few months it is going to start affecting your life, and most likely it won’t be in the way you would like.