The International Monetary Fund (IMF) is calling for a common regulatory framework to prevent the use of crypto assets (such as Bitcoin) to evade taxes and sanctions, or even to support transactions involving criminal activity. The organization believes that the legal status of decentralized and digital finance should be “clarified” globally, very different in each country or region, although it calculates that its importance is still “relatively” small, accounting for 1% of the total value of global markets.
This week, the IMF, as well as the US regulator (SEC) or the Bank of Spain, received another warning about the use of crypto assets outside the legality of developed countries.
The notice, which coincides with the collapse in the price of bitcoin and other cryptocurrencies in recent weeks and El Salvador’s push for default due to its President Nayib Bukele’s bet on bitcoin itself as the country’s official currency.
The international organization, chaired by Kristalina Georgieva, emphasizes that crypto assets “can be supported and sold without intermediaries”, without borders and away from other rules.
“Even when these assets are traded and held through intermediaries such as exchange offices and virtual wallets, they may not be regulated or required to meet minimum national or international standards,” he continues. This main and original characteristic of decentralized finance is at the same time one of their main attractions, as well as one of the biggest risks (or perversions).
Brian Armstrong, chief executive of one of the main cryptocurrency asset brokerage platforms, Coinbase, was forced to deny the “bankruptcy” this Wednesday after the company’s shares crashed in the stock market due to poor first-quarter results and the collapse of bitcoin. , and above all, regulatory warnings in the US.
1/ There is some noise due to the disclosure we made today in our 10th quarter about how we own crypto assets. In short, your Coinbase funds are as safe as ever.
— Brian Armstrong — barmstrong.eth (@brian_armstrong) May 11, 2022
Pablo Hernandez de Cos, governor of the Bank of Spain, acknowledged “some progress in regulation” but insisted that “a lot of work is missing” in a speech at the BIS (Bank for International Settlements, according to the English acronym). “The accelerated development of decentralized finance and crypto assets requires a proactive and forward-looking approach to regulation and supervision. Cooperation between authorities and global organizations is key,” he concluded.
Neither identity nor place of residence
“The main motive or reason for 50% of investors [en criptos] is the return on assets. Others do it just for fun or to please third parties, and there are those who do it with the intention of exploring the use of alternative currencies without the need for intermediaries. It now seems clear that there are few investors looking to protect the value of their income and that a very small group is currently investing with the intent to support blockchain technology. [tecnología de cadena de bloques que sirve para generar una infraestructura de registros sin la intervención de bancos ni autoridades]”, notes Eduard Garcia Rosikart, professor at the OBS business school.
The profiles cited by the expert explain aggressive advertising campaigns with betting-like methods that have increased in Spain in recent months, but do not quite match the IMF’s fears. Not with data from the Tax Agency or the Bank of Spain of more than 233,000 taxpayers who must declare their investments in crypto assets.
And the IMF goes even further and condemns the fact that most crypto assets are sold without the possibility of knowing the identity of investors or their place of residence. “The lack of physical location of cryptoactive ledgers makes it difficult to determine the place of residence of the parties carrying out the transaction and applicable laws,” the agency clarifies.
“Therefore, traditional regulatory and policy strategies may not be properly applied to oversee crypto asset markets or market infrastructure for transmission, trading and settlement,” he continues.
Crypto Asset Threats
And here are the risks. Garcia Rosicart sums them up from an investor’s perspective: “Volatility [la posibilidad de perder o ganar grandes cantidades de dinero en muy poco tiempo]”, the lack of support from the regulator in the event of a liquidity shock or bankruptcy, or the simple disappearance of the intermediary and “computer vulnerability”.
So far, the IMF is looking at the institutional ones: tax evasion, non-compliance with sanctions, or the use of decentralized finance for criminal activities.
“In many countries, platforms that work with crypto assets are regulated only for compliance with anti-money laundering and anti-terrorist financing requirements,” an international organization laments (recently, one of them, Coinbase itself, reported blocking 25,000 Russian cybercriminals). linked cryptocurrency wallets).
“While many cryptocurrency trading platforms are beginning to integrate AML/CFT measures into their procedures, criminals are also using innovative cryptographic technologies such as Anonymity Enhanced Cryptocurrencies (AEC) in English to hide the details of financial transactions,” Moody’s said in a statement.
The way out for the ruble
In the same vein, ratings agency Moody’s recently released a report that questioned whetherThe imposition of international sanctions on Russia following the invasion of Ukraine has raised the question of whether cryptocurrencies, including bitcoin, can be used to circumvent them and restore the ability of Russian citizens and the Russian government to at least partially conduct financial transactions.”
And more: “Another important question is whether these digital assets can be used as a store of value until the sanctions are lifted.” Moody’s conclusion is that “Given the limited size and low liquidity of the ruble-to-crypto exchange market, we believe that at this point in time, crypto assets are unlikely to provide a viable and effective solution to circumvent sanctions.”
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