Contrary to unpopular belief, history shows that ‘wild west’ markets like cryptocurrencies need some form of regulation
Perhaps no other financial market could best compare with cryptocurrencies than what the United States experienced between 1816 and 1863 during the era of ‘Wildcat Banking’.¬† Because during that period when bank charters were tied to territories and emerging states, and where many of these banks actually printed out their own forms of money and script, the amount of fraud, insolvency, and overall speculation helped lead the Federal government to have to finally create a central bank by the second decade of the 20th century.
Cryptocurrency advocates love to tout decentralization and the lack of sovereign regulation as two of the main proponents for the crypto markets.¬† However with the¬†recent bankruptcy¬†filing of a large South Korean cryptocurrency exchange which appears to be on par with the more famous Mt. Gox failure from a few years ago, the need for regulatory oversight in some form or fashion may inevitably become necessary, at least with the third party conduits who facilitate services for cryptocurrencies.
There’s a great deal of confusion right now about the regulation of cryptocurrencies such as bitcoin.¬†Many observers seem to confuse “regulation” and “banning bitcoin,” as if regulation amounts to outlawing bitcoin.
Further confusing things is the regulation of cryptocurrency exchanges, where cryptocurrencies are bought and sold.
In China, for example, cryptocurrencies are not outlawed, but exchanges were shut down until regulators could get a handle on how to deal with the potential for excesses such as fraud, misrepresentation, etc.
A Wild West free-for-all is conducive to scammers, and so some thoughtful regulation that protects users is to be welcomed.¬† ‚Äď¬†Of Two Minds
As financial analyst Charles Hugh Smith points out above, there is a large difference in the regulation of exchanges versus the regulation of cryptocurrencies.¬† And in fact for many governments who have found their economies becoming stagnant over the past eight to twenty years due to central bank interventions in the markets, cryptocurrencies can solve a number of problems for them by integrating a non-central bank controlled currency into the economy that could boost consumption, and help stimulate growth without the need for even more debt.
But for now there are still too many horror stories in the cryptocurrency markets thanks to a lack of regulation, a lack of encrypted protections, and in many instances, the inability for cryptocurrency holders to actually sell their cryptos in large quantities.¬† And while cryptocurrencies do represent one of the freest markets remaining in the financial system, their ‘wild west’ status could also lead to criminal activity that kills the golden goose, and an inevitable demand for sovereign regulation from those who lost money due to their own negligence, or the malfeasance of third party conduits.
Kenneth Schortgen Jr¬†is¬†a writer for¬†The Daily Economist,¬†Secretsofthefed.com,¬†Roguemoney.net, and¬†Viral Liberty, and hosts¬†the popular¬†youtube podcast¬†on Mondays, Wednesdays and Fridays.¬†Ken can also¬†be heard Wednesday afternoons giving an weekly economic report on the¬†Angel Clark radio show.