The choice of encryption: joining the financial system or fighting it

The choice of encryption: joining the financial system or fighting it

The year 2020 will have delivered major conclusions regarding the state of the current financial system and the state of the cryptomoney market. While the former suffered from the effects of the Covid-19 pandemic, the latter will have gradually gained in public importance. Presented as a solution against inflation, Bitcoin (BTC) has thus gained the confidence of institutional investors. A confrontation naturally arose between the financial system and the cryptomoney industry. Bitcoin has since crossed several bars above its former record value, and has therefore gained an ascendancy in this battle. The question now is which side to stay on.

Government economic stimulus policies have benefited Bitcoin

Government economic stimulus policies have benefited Bitcoin

To counter the effects of the crisis, central banks have poured huge amounts of liquidity into the financial market as a support. This policy has naturally pushed up asset prices on the markets, including those of cryptomoney. But long before that, the cryptomoney market was at its lowest point with a massive liquidation of assets. A situation that makes Frances Coppola -Finance specialist and columnist at CoinDesk- say that « the fate of the cryptoskills in 2020 has been mainly determined by central banks ».

In the end Bitcoin, ether and some stablecoins ended up becoming safe assets for loans in the DeFi space, which also performed very well. As institutional investors turned to the crypt market to protect their assets, they attracted ordinary investors into the movement. Cryptomoney, which is increasingly easy to trade and hold, has also enabled institutions to obtain them massively given the funds at their disposal. If cryptosystems seem to be in a good position contrary to trusts and incidentally to traditional banks, they do however have an advantage.

Towards the elimination of regulatory inequalities in terms of Know Your Customer (KYC)

Towards the elimination of regulatory inequalities in terms of Know Your Customer (KYC)

Unlike banks, cryptomoney companies enjoy the anonymity of transfers from exchanges to private wallets. Banks spend fortunes to comply with Know Your Customer/Anti-Money Laundering (KYC/AML) requirements. It is also announced that the Financial Crimes Enforcement Network (FinCEN) would henceforth impose this law on the cryptographic space.

While this decision could make cryptomoney more attractive to large institutional investors, it would plunge the sector into a dilemma, according to Ms Coppola. « If the cryptospace chooses to comply, cryptomoney could be widely adopted – but at the cost of ultimately being absorbed into the financial system it is intended to replace. But if it chooses separation, the road will ultimately lead to a head-on conflict with those whose job it is to enforce existing laws. Who will win? « she said, introducing the debate.

It is difficult at the moment to answer this question with confidence, especially since there is no indication of the stance each side will take. It is certain, however, that the numerical currencies of the central banks that will land in 2021 will necessarily influence this battle.

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The choice of encryption: joining the financial system or fighting it
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