Interesting guest post by Valentine Ferrari, see more about her work here.
Bitcoin (BTC), the world’s leading cryptocurrency, made some major headlines in 2017. Known for its high volatility, the price of Bitcoin went from less than $1,000 at the start of last year to nearly $20,000 on the CoinDesk Bitcoin Price Index (BPI) by the end of it. Since then, while still quite valuable, the price has plummeted by more than half.
There are a variety of factors that financial analysts suspect might influence the price of this most widely-used digital currency. One of these suspected factors is government regulations and the legal framework in major countries regarding Bitcoin. It seems that the more support Bitcoin receives from jurisdictions who deem it a legal form of currency, the more its price rises. Yet, the more governments attempt to control this decentralized digital currency, the more its price seems to fall.
For instance, take a look at the effects that recent laws in the following jurisdictions have had on Bitcoin:
Japan legalizes Bitcoin
In 2017, when Bitcoin was legalized in certain countries, it had a positive effect on the price. A prime example of this is Japan. Back in spring of last year, Japan announced that it would be accepting Bitcoin as a legal payment method on April 1, 2017. At the time, this announcement caused the digital currency to rise by 2.8% at $1,133 per coin, which was the first good news for BTC in a while.
South Korea tightens trading rules
In January of this year, Bitcoin dropped below $10,000, and this price crash – followed by volatility – is believed to be in part due to South Korea’s new cryptocurrencies trading rules. These rules went into effect right before the price plummeted.
As part of the new rules, BTC users are required to use their real identity when trading Bitcoin or anything on Korean exchange. This means that they will be required to link their trading accounts with real bank accounts, which takes away the anonymity of Bitcoin. This rule was implemented to prevent crimes, such as money laundering.
Also, foreign investors are not allowed to access Korean markets. This prevents foreign traders from taking advantage of the Korean crypto exchange services’ better BTC prices compared to other international exchanges. All that said, South Korea has no intention of banning cryptocurrencies. Therefore, any drop in price its regulations may have caused, is likely only temporary.
The “great firewall” of China strikes
China is one of the largest Bitcoin markets in the world but this doesn’t mean that the Chinese government is in favor of the cryptocurrency. As reported in Fortune, China’s “Great Firewall” against Bitcoin will reportedly block anyone in China from accessing websites that offer initial coin offerings (ICOs) or cryptocurrency trading services. In addition, Bitcoin-related ads and advertisements related to other cryptocurrencies, have also been washed from social media and search engines in the nation. This isn’t anything new, as the country has a long tradition of using its so-called “Great Firewall of China” to block unwanted foreign websites.
Furthermore, ICOs have already been banned by authorities in the country and domestic exchanges have been shut down as well. However, in spite of these bans, this hasn’t stopped people in the country from accessing foreign services within China. Be that as it may, in early February, the country’s central bank – the People’s Bank of China – said it would “tighten regulations” on Chinese people’s participation in overseas ICOs and cyptocurrency transactions. This news from China didn’t help Bitcoin price, which had already reached a shaky point at that time, sliding below $8,000.
Russia finalizes federal law on virtual currencies
Although the legality of Bitcoin in Russia has long been disputed, Russia has finalized a federal law regarding cryptocurrency regulations and ICOs. According to the officially published draft law, it regulates the “creation, issuance, storage and circulation of digital financial assets, as well as the exercise of rights and performance of obligations under smart contracts.” For the first time, this new law also provides the country’s official definition of cryptocurrency, crypto exchanges, tokens, smart contracts and mining.
Additionally, under the new law, Russian citizens will be able to buy and sell virtual currencies and tokens only via professional participants of the securities markets. While there are tight restrictions on these currencies in Russia, the fact that cryptocurrencies have been officially legalized is a huge step. The reason is that, last year, Russia’s Ministry of Finance had hoped to pass a law banning Bitcoin.
Gibraltar establishes the first regulatory framework for BTC companies
It’s not just major countries who are making headlines in the Bitcoin world. The British overseas territory Gibraltar has recently established a regulatory framework for companies using blockchain technology. Gibraltar’s legal system, which is independent from the UK, passed a new law that went into effect January 1, 2018. It requires all businesses using DLT (blockchain technology) – companies that store and transmit value – to obtain a license from the Gibraltar Financial Services Commission.
More positive than not, the purpose of this law is to protect both Gibraltar’s reputation and customers of cryptocurrency businesses in the overseas territory. This new law, which introduces a DLT Regulatory Framework in collaboration with the financial services industry, is considered to be a world first.
Trouble in America – Decisions of major U.S. banks spook the market
Even though the United States has always been a friend of Bitcoin, a growing number of big name U.S. credit-card companies have decided that as of February, they are no longer accepting purchases of Bitcoin or other cryptocurrencies on their credit cards. According to JPMorgan company spokesperson Mary Jane Rogers, the company doesn’t want the credit risk associated with these transactions. Other major American credit card companies that have joined the ban include Bank of America and Citigroup. Even the U.K.’s Lloyds Banking Group have followed suit.
With major credit card companies pulling out, this is only likely to further contribute to Bitcoin’s sizeable price drop that has occurred this year, compared to last.
Bitcoin is, and always has been, a volatile currency. With the exception of 2014, it has also been the best performing currency every year since 2010. For its many benefits seen by its users, equally its many drawbacks are seen by financial institutions. While government’s around the world rise to the challenge to workout regulations on how to legalize the use of virtual currencies within their jurisdictions to prevent illegal use, there will likely continue to be dramatic increases and decreases in Bitcoin price.