FTX’s Surprising Impact on Crypto Investor Sentiment
How governments worldwide are responding to the debacle
Ric Edelman: It's Monday, February 27th. All this week, my team is at Orion's Ascent Advisor Conference in Orlando. It's a sold-out event by one of the most important fintech providers in the entire financial advisory field, and we're honored to be there. If you're an advisor who's attending Orion's conference, be sure to stop by our booth.
Hey, you know what? It's been three months since the FTX blowup. I want to ask you a question. Are you now more interested or less interested in investing in crypto? Amazingly, all the new survey data shows that investors are now more interested in crypto than ever. You must be joking. No, I'm not joking.
The reason? Everybody says they're expecting the government to improve the level of consumer and investor protection, and that's exactly what indeed is starting to happen. There's a lot of activity in Congress and we can expect lots of bills in the coming months.
Other countries are doing the same thing in the United Kingdom. The government there has announced its plans for regulating crypto. The U.K. Treasury Department says it will place crypto trading and lending within the Financial Services and Markets Act. In Hong Kong, the chief securities regulator there says crypto trading companies have to get a license and operate under new rules that protect consumers and investors. Their goal is to make Hong Kong a hub for crypto in Asia. Already dozens of companies have said they'll comply and get the licenses, including DBS Group and interactive brokers. Why did Hong Kong make this announcement that it's tightening the rules and requiring firms to be licensed? Well, a spokesman for the government said they're doing this because if they don't let retail investors trade crypto at all, those consumers will just trade on overseas exchanges and that could put them at even more risk.
So clearly, Hong Kong realizes that crypto is a global asset. You can't stop it, so you're better off regulating it and protecting your citizens. In other words, if you can't beat them, join them. And amazingly, Hong Kong's efforts are getting support from China. According to Bloomberg, Chinese government officials have been frequent guests at crypto events in Hong Kong, and their tone has been described as friendly.
And India, where the legislature tried to ban crypto two years ago but the Indian Supreme Court threw out the legislation - is now working with the IMF, the International Monetary Fund, to create monetary policy for crypto. Again, if you can't beat them, join them. This is a big deal because India is now the head of the G20. That's the group of the nation's 20 largest economies. And being the head of the G20 this year means India gets to drive the agenda for the G20's work. And India's finance minister says a priority for the G20 agenda will be figuring out how to regulate crypto.
And then there's the Financial Stability Board (FSB). That's the international agency that sets standards for financial reporting for organizations worldwide. The FSB says this July it's going to release recommendations for regulating crypto and stablecoins. And by the way, it has hinted that many of the current stablecoins will not meet the standards that they're going to issue. The FSB is also coordinating with the IMF on regulatory issues associated with crypto.
And let's not ignore the Bank for International Settlements (BIS) because that group is comprised of all the world's central banks. And its Committee on Banking Supervision has proposed new rules that will let banks worldwide put up to 2% of their capital into Bitcoin. This proposal has been endorsed by the governors of the BIS.
Now think about that. The world's banks hold $180 trillion in assets with this new rule. Banks could end up holding $3.6 trillion of Bitcoin. The entire Bitcoin market cap right now is only $500 billion, 1/7 the size. What will happen to the price of Bitcoin when the world's banks start buying it? Everyone's welcoming all this flurry of activity, or at least all the legitimate companies are.
Coinbase, for example, the largest crypto exchange in the US last week said, "We expect 2023 to be a year of regulatory focus and we believe we will be a beneficiary of this new environment." That's the way it's supposed to work. Businesses can figure out how to make money in any environment - growing economy, a falling economy, high inflation, low inflation, high interest rates, low interest rates, whatever. All big business wants to know is what the environment is.
We just need rules of the road. Hey, we'll drive at whatever speed limit you set. But right now, we don't know what the rules are because governments around the world haven't issued them yet. And that has kept most big businesses on the sidelines. Wall Street firms, banks and insurance companies, they're mostly sitting out waiting for the rules. But now those rules are fast being written. Wait another couple of years and the speed limits will be posted and you'll find supercars flying down the highway.
Are you sure that you don't want crypto as part of your diversified portfolio? You need to learn more about this so that you can gain comfort and confidence. Start off by reading my number one best-selling book, The Truth about Crypto.
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