Important : This is an old article that has been transfered from our old blog as we believe it is still interesting and valuable. Everything presented in the article is an opinion and XBTFX will always strive to be compliant with relevent regulations.
Ever since 2017's meteoric rise in the price of Bitcoin, the asset became a mainstream media talking point, with ups and downs based on its price action. The meteoric rise of Bitcoins price, of course, resulted in more interest from regulators and government bodies to where, today cryptocurrencies are now facing the dawn of more regulation.
Since 2018 the overall stance of EU and that by ECB was that banks shouldn't deal with cryptocurrencies. There are even some leaked e-mails by the ECB prohibiting banks from taking money from Cryptocurrency exchanges. The reason behind ECB's block on Crypto since 2018 had a lot more to do with AML than what they claim was "risk associated with the asset". Since then, Europe quickly drafted a new Anti-Money Laundering Directive that is now enforced by law since the 10th of January 2020, known for short as 5AMLD (Fifth AML Directive). Since the adoption of this AML directive we have now seen Germany allow local banks to store, buy and sell Cryptocurrencies since January 1st 2020. Read more here : https://thetokenist.io/germany-passes-law-enabling-banks-to-store-cryptocurrencies/
The above further proves the point, that the whole reason Europe didn't allow banks to take cryptocurrencies was to avoid issues from tax evasion and Money Laundering. Instead ECB forced European cryptocurrency enthusiasts to use e-payment service providers if they want to sell crypto to fiat. It is debatable if this was a good or a bad move and there a lot of horror stories with regards to money frozen for months on those providers. However, the real issue here is the significance of the new directive. The new directive indeed places great emphasis on making sure that all data from source of funds to personal data is collected by everyone dealing with Cryptocurrenies within the boarders of Europe. One might say the EU has gone too draconian with the regulations. We are already seeing Deribit move their operations from Netherlands to Panama due to the new regulation and while many will say Deribit is trying to avoid regulation the truth of the matter is much different.
What regulators and more specifically the European Union tend to forget all the time with regards to these directives is that they stifle innovation and introduce immense costs. These costs not only make investing into product improvement and R&D a lot more difficult but they also slow down the day-to-day operations considerably. While our aim is not to be dismissive of regulation we also want to point out some official statistics:
First of all, using BTC for money laundering, terrorist financing or any sort of criminal doing is just a bad idea. Read more here : https://qz.com/1761343/bitcoin-money-laundering-is-a-classically-stupid-crime/
Quote from the article:
“Cryptocurrencies have the reputation for being cross-border and anonymous, and therefore attractive to bad actors across the world,” Kim Grauer, senior economist for Chainalysis, explained to Quartz over email. “But because transactions involving cryptocurrencies like bitcoin are recorded on a permanent, public, and immutable ledger, cryptocurrencies can actually offer unprecedented transparency into financial transactions.”
Only 2% of BTC transactions have anything to do with any sort of illicit activity. Read more here : https://observer.com/2019/08/bitcoin-use-illegal-finance-mit-study-blockchain-ai/
Crimes are financed via Cash - 92% of 1 US dollar bills tested carry traces of cocaine : https://en.wikipedia.org/wiki/Contaminated_currency
Forensic scientists have said that around 80% of all British banknotes contain traces of drugs.
Thus, let's compare what we have in two opposites:
On one side we have BTC - Immutable, Completely Traceable and every transaction is forever stored.
On the other side we have Cash - Completely untraceable unless the bills are marked.
Thus, we can conclude that in reality cash is more problematic for authorities when used for criminal conduct and the use of BTC would actually be beneficial to authorities. While some regulation might be necessary when moving money from Crypto-to-Fiat the overall scrutiny over the industry and over-regulation is unfounded on the basis of criminal conduct. It would have been a lot wiser if just like traditional banks, there were a fixed set of rules for certain amounts that require source of funds declarations and such.
Perhaps, this is exactly why governments are leaning towards the approach conducted by firms like ChainAnalysis which does not perform KYC, but KYT( Know Your Transaction ). To be fair, we find such an approach a lot more reasonable than excruciating KYC requirements that often ask for extremely sensitive personal data, however, we beg the question, what about that one person whom by one accident did a transaction with a friend that might be involved with something illicit ? Does that person get flagged for no reason and what is the procedure to prove otherwise?
It seems the current motto in the EU when it comes to Crypto is that everyone is guilty if flagged until proven otherwise, which we believe, can't be a healthy approach.
We believe these news regulations will divide the crypto community into two separate camps : those that want full anonymity and those that want to comply with the relevant regulations to avoid attention. The first group are the Cypherpunks whom are not necessarily criminals but advocate for upmost privacy and no-KYC, the second group are the investors that advocate for more regulation and easier fiat-to-crypto transactions hassle free. It is curious to see what happens, however, perhaps, in crypto it is possible that these two groups co-exist in peace together.
