Opinion Government-Related Scenarios that could Drastically Damage Bitcoin’s Potential

Government-Related Scenarios that could Drastically Damage Bitcoin’s Potential

May 1, 2021

A previous couple of weeks brought about a level of insecurity in the cryptocurrency circles that have not been seen in nearly two years. The last time it did appear was back in the summer of 2019, when the crypto rally that began a few months earlier began to stall. The same stall quickly turned into a quagmire of price movement which saw its earth-shattering fall the next year, when the devastating March crash of 2020 took place. Now, however, the markets have become accustomed to good times, with the present prolonged rally taking place ever since the crypto prices began heading north in the closing months of 2020. Yet, this process seems to be hitting slowly a rising number of hurdles – this was best seen in mid-April when bitcoin BTC token reached the level of 47,000 USD, a price that was not seen for many long weeks.

With this taking place, many traders are now calculating the possibility of another major correction that could be in the cards. Besides that, there is another type of creeping fear and it concerns the possibility that the government influence – even though presently lacking on all digital currency fronts – might influence itself in the crypto markets. Here are two scenarios, which are opposite in nature, that could lead to substantial damage to the prospects of the bitcoin token, but also the entire crypto market as well.

Damned if you do…

The baseline problem with the government’s influence on crypto is that it is a scenario that comes with two bad outcomes. In other words, there is no sense that crypto can stand to gain anything from government intrusion into the same space. Quite the contrary, these two outcomes are both undesirable to basically everyone in the crypto space in one way or another. While there are many variations of these possible intrusions, all of them boil down to two different possibilities that seem presently just as likely.

The first possibility is that governments will begin to set up strong cryptocurrency regulations that will simply ban one, several, or all aspects of crypto holding and trading. The other is the possibility that the governments will do the exact opposite and decide to embrace crypto. However, they would not do the same through existing networks like bitcoin, but would instead choose to make their own blockchain-based digital currency. These would be issued by the national central bank and take the form of central bank digital currencies or CBDC.

Crypto Ban

There is no need to detailedly underline why a total or partial ban from a particular government in regards to cryptocurrencies or even only one crypto token would be immensely damaging. The crypto evangelist will be usually quick to underline that even in this catastrophic circumstance of a massive global ban on cryptocurrencies, the network would still remain operational. Through the use of systems like Tor, which reroute users through a range of IP addresses, the network from a technical standpoint would remain active no matter what. Also, dedicated users would be able to activate their wallets and get their tokens even if only a single cryptocurrency rig for that particular network is up and running.

Yet, even these robust systems would see their fiat value drop to next to nothing, especially because the process of connecting a crypto network and a fiat payment processing setup through a third party would be non-existent in the total global crypto ban scenario. Instead, people would be left with the mechanisms that existed before the rise of providers of crypto exchanges like Binance or Coinbase – peer-to-peer trading. This means that the secondary ecosystem around these currencies of digital tokens, evne bitcoin, would disappear and something new would need to grow around now-illegal blockchain networks and their supporting mining rigs, which would also run on enthusiasm alone, not any direct fiat profit.

All Eyes on US Regulation

Banning cryptocurrencies globally is, of course, a worst-case scenario that has little to do with the actual world and political forces inside of it. But, in the globalized, all-connected time of the present, where esports see bigger growth than even the most popular traditional sports, things are inextricably connected. So, even a relatively minor global crypto event, like the Turkey ban on some aspect of cryptocurrency trading has a strong resonant effect on the rest of the markets.

Similarly, a sense of expectancy that something similar might happen in India soon enough has been swaying the markets occasionally for years. Because of that, traders and investors keep holding their gaze on the US and potential regulatory moves this country might enact in the future. All of them have the same crypto circles more than worried, even though with the rise of popularity, chances of any regulatory move only grow stronger. Once they do appear, chances are that the fear and panic regarding that development will cause more damage than any actual hindrance that regulators might generate.

Government Embrace Crypto

The other negative government-based scenario is that where governments, especially that of the US, suddenly begin to understand and thus embrace blockchain technology in a financial domain. As Ronald Regan famously said, people are terrified in the US when a person from the government comes around and offers their help to fix something. Or, at least, that is the Republican mantra that he set in place nearly half a century ago. Today, things like the US stimulus plans show that the public is not that hostile to government aid. But, governments using cryptocurrency concepts for their own ventures, namely CBDCs, do present a potential problem in the terms of competition.

However, it is not difficult to imagine governments doing a very bad job with their digital tokens, which only further drive people towards cryptocurrencies, which get free publicity from the government initiative. That, in turn, again brings the story to that of regulation and the central bank pushing on crypto in some shape or form. Cryptocurrencies, as decentralized entities, would have no means of pushing back in any sensible way. So, for now, the crypto community continues to hope that governments will stay indifferent to crypto altogether.