by Kenny Hearn, Chief Investment Officer SwissOne Capital
When setting new regulations for a nascent technology, there is the high road and there is the low road.
The high road involves clear communication between industry participants with Sandboxes in place to support all stakeholders in understanding the various moving parts, risks, challenges and solutions so that the new technology can reach users in a safe and efficient manner. Most of Europe, the UAE, and parts of Asia are taking this stance. These regions become breeding areas for the new technology and their populations enjoy the use of the technology in a safe and secure manner.
Then there is the low road, this approach involves poor and vague communication between the regulator and industry participants. Confusion is rife and the longer it draws out the worse it gets for users and various stakeholders. The Regulator does not engage with participants in a proactive manner to ensure meeting of certain standards but instead falls into a fact finding mission which in the end results in a game of entrapment and eventual declaration of war on the industry.
The SEC has taken the low road.
In these uncertain times, it is easy to question the future of the industry. Indeed, some of us on our team have experienced 4 crypto winters. We always fall back to the fundamentals. The technology is sound, extremely useful, streaks ahead of what is currently offered by traditional centralised finance, and frankly it is the only way we get from Web 2.0 to Web 3.0. It is not going anywhere.
We always knew the time for regulation would come. Indeed, most industry participants have welcomed regulators with open arms. Those that truly understand the benefits are extremely excited by and wish to make it as safe and possible for all stakeholders. It could not have played out any other way.
This technology will eventually move through a mass adoption phase and that makes the value we see today extremely cheap. Countries that take the high road will benefit more over those that don’t not just from a monetary perspective but from the benefits of greater efficiencies that the technology provides.
Regardless, we are of the view that this extended crypto winter affords the industry more time to scale up its offerings. Indeed, Vitalik Buterin, wrote an interesting paper recently, called The Three Transitions, namely, L2 scaling transition, wallet security, and privacy. This trifecta, he describes is what is needed to support a mass adoption phase and in order to achieve these, he believes, the way that applications and wallets interact with Ethereum needs to fundamentally change and this will take time. Crypto winters have afforded this time.
Therefore, our view is that this stalling of clear regulatory guidelines buys the industry time to further develop the technology ready to take on mass adoption and scaling capabilities.
5 years ago, the thought of crypto being on the agenda of a US presidential campaign would have been unthinkable. Yet, here we are. The industry has not stopped despite all the negative news. In fact, the price of Bitcoin and Ethereum have remained relatively strong (for the time being). This is bullish: bad news, resilient price action.
Finally, at the core of the US equity market growth are tech companies moving toward smart economies and artificial intelligence. Distributed ledger technology goes hand-in-hand with these products and services. Smart cities, smart economies are married to Web 3.0 products and services.
It always darkest before the dawn. (SwissOne Capital/mc/ps)