Digital assets, when it comes to innovation rather than regulation
On the 9th of last month, when the 20th presidential election was held in Korea, U.S. President Biden signed an executive order to regulate cryptocurrency. It is the first pan-government approach to mitigate the risks of digital assets and their underlying technologies and drive innovation. With this measure, the worrying atmosphere that “the Biden government does not like cryptocurrency,” which has been publicly revealed in the cryptocurrency community, has also eased much.
The main content presents national policy for digital assets with six major priorities: consumer and investor protection, financial stability, illegal finance, global financial system and economic competitiveness, financial inclusion, and responsible innovation. In particular, the executive order emphasizes that the U.S. will lead the global financial system and economic competitiveness through the responsible development of digital assets as a driving force for financial innovation, not as a source of risk.
Of course, it is still trying to establish and coordinate tasks and roles between various supervisory agencies within the administration, and detailed policies are insufficient. It does not contain new rules or additional requirements for participants and platforms for derivatives trading with large leverage or large-scale transactions of billions of dollars. A series of reports, evaluations, and consultations will occur within the administration over the next 90 days to a year.
Nevertheless, the implications of this administrative order are very great. In other words, digital assets and underlying technologies that have developed into global phenomena are recognized as strategic assets of the state due to the increased popular acceptance of digital assets, including cryptocurrency.
The market capitalization of digital assets, including cryptocurrency, exceeded $3 trillion in November last year, which is still small compared to the existing financial market. Still, the rapid growth is noteworthy given that it was only 14 billion dollars five years ago. In addition, according to a Pew Research Center survey conducted in September last year, about 16% of U.S. adults (about 40 million people) had invested, traded, or used cryptocurrency. Only 1% of U.S. adults answered the same question in a 2015 survey. In addition, 86% of all U.S. adults have heard of cryptocurrency at least once. In the same survey in 2015, 48 percent.
Several factors hinder the understanding of numerous digital assets centered on Bitcoin, and in the first ten years, the repetition of enthusiasm and emptiness in which programmed crypto coins and tokens appeared and disappeared like droplets without enough counterparties. In short, there was a lack of business foundations for the proper valuation of digital assets.
However, in the past five years, most of the existing centralized financial systems have been replicated as “DeFi.” A new digital economy is rapidly forming as business contracts, payments, and delivery procedures in various industries have been automated based on blockchain technology.
However, the price volatility of digital assets is still more than twice that of gold, making it difficult to secure status as a safe asset or as an inflation-hedged asset. However, the rapidly increasing acceptability of digital assets is expected to significantly reduce price volatility by increasing the liquidity of the assets.
Let’s come back to Korea, where we live, and think about it. Korea should also recognize digital assets and their underlying technologies as national strategic assets and hurry to strengthen its leadership in the global financial system and economic competitiveness.
To this end, it is hoped that some specific ministries will be able to draw and practice a big picture of coordinating and balancing with each other government-wide, rather than competing on using the tools of attributed supervision and monitoring. Finally, and for now, we hope that the financial supervisory authorities will abandon the club in their hands and protect the digital asset ecosystem with map and compass.