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Cryptocurrency Policy -- Macrotrend Analysis

Readers of this blog know that at BCMstrategy, Inc. 2019 is proving to be a watershed year as the Distributed Age accelerates, delivering profound shifts in our understanding of sovereignty, forcing the Bretton Woods institutions and regulators to adapt. Nowhere is this more evident than in the cryptocurrency sector, as this Globcoin White Paper and this AltCoin Magazine essay illustrate. Rapid innovation forces the G20 and financial regulators at the Financial Stability Board to sit up and take notice.

So when the Atlantic Council asked me to participate in a panel discussion regarding the Libra proposal last month, I welcomed the opportunity to engage in a structured discussion of the issues. It did not occur to me that the issues raised in that discussion would dominate my summer.

This blogpost in Section I sprints through our various macrotrend analysis contributions regarding the Libra proposal this summer, with hyperlinks and videos if you want to delve into the details. Section II extends the analysis by asking whether all this activity has moved the policy needle. We answer that question with concrete data from our patented platform.

Section I -- MacroTrend Analysis: Recap from July and August

Let's start with the Atlantic Council discussion in early July. Occurring at the edges of the Congressional hearings regarding the Libra proposal, the room was packed. Those of us on the panel were all veterans of the public policy process, having served in leadership positions at the Treasury Department, the State Department, and the Congress. We covered AML/compliance issues, data privacy, data governance and, of course sovereignty:

The BCMstrategy, Inc YouTube channel has started a Cryptocurrency playlist, to which this video has been added. You can check out the playlist HERE. Please feel free to suggest additional videos for inclusion in the playlist or subscribe to the channel.

The panel discussion and questions paired with the intense regulatory policy debate show a great need for concrete analysis not only of the actual proposal but also of the implications.

Using the patented platform daily (a perk of being the CEO!) provides me with significant operational efficiencies, permitting me to contribute analysis regarding transatlantic and regulatory policy issues raised by the Libra proposal, cryptocurrency challenges for the Bretton Woods institutions as well as analysis of the Libra Economy and the proposed Libra Revenue Streams while participating in a start-up accelerator, hosting demos for potential Pilot Program participants, and generally running a business.

The free time left space to design these infographics some of which have not even been published yet):

This is only the tip of the iceberg. The issues are significant. But have they moved the policy needle? Let's look at what the alternative data from our patented process tells us.

Section II -- Data-Driven Predictive Analytics

So far, the data tells us that the policy reaction function has not yet played out fully.

Policy activity regarding cryptocurrency has been steady and intense throughout 2019, but the activity mostly relates to initiatives put into play back in February. Moreover, the Libra proposal is not yet a reality; the Association and its ecosystem will not be up and running until spring 2020 at the earliest.

In other words: the time horizon for the Libra ripple effect to be seen in the policy process operate along a 12-18 month time horizon in the future. This makes the situation ripe for superforecasting opportunities by using our advanced technology to track and analyze automatically incremental policy moves.

Cryptocurrency Policy Risk Time Series (Jan - Aug 2019) (c) 2019 BCMstrategy, Inc.

Consider where we started this year -- The spike in rhetoric during the summer was driven by the combination of the Libra proposal release and the annual G20 summit which saw global leaders pivoting fast and hard towards policy initiatives relevant to artificial intelligence, distributed ledger technology and, yes, cryptocurrency.

Cryptocurrency Policy Risk Time Series (July 2019)

Zooming in on the month of July illustrates well the scope of policy activity. A broad range of policymakers globally were taking action regarding pre-existing initiatives even as Congressional hearings on Libra added new issues to the policy discussion globally. Every few days saw a new action, and not all of those actions were related to the Libra proposal even when Libra dominated news coverage.

Policy initiatives regarding distributed ledgers are more technical and attract less media attention, so the comparable YTD chart for those issues looks more lumpy:

Distributed Ledger Policy Risk Time Series (Jan - Aug 2019) (c) 2019 BCMstrategy, Inc.

In other words: assessing the Libra regulatory reaction function requires looking at activity in related policy sectors even when Libra is not directly mentioned. Moreover, tracking these additional issues provides insight into how policymakers will evaluate Libra-related activity by regulated financial institutions.

August predictably delivers a drop-off in activity from the official sector. Do not be fooled by this annual lull. The autumn will deliver to us a bumper crop of policy activity in the cryptocurrency and distributed ledger arenas.

A new European Parliament and new leadership at the European Commission, the European Central Bank, the World Bank, and (after the October annual meetings) the International Monetary Fund will coincide with the Libra Association's race to launch its cryptocurrency platform/ecosystem next spring. Newly minted leadership will have multiple incentives to respond dynamically to cryptocurrency challengers across a broad range of issues.

Which issues can we expect to take center stage? Conventional wisdom holds that anti-money laundering and data privacy issues will be top priorities. These issues will certainly generate headlines (and headline risk for investors in the sector).

Those of us that have been tracking these issues for years know that far more important macroprudential issues are in play alongside nearly existential questions about the role of a central bank in society, systemic risk/spillover issues, the regulatory and supervision perimeter, Home/Host supervision and the role of regulated intermediaries within the crypto space.

These themes have largely dominated our contributions to Duke Law School's FinReg Blog for over a year. Now that the G20 leaders formally endorsed the pivot towards AI and FinTech policy issues, the autumn will provide a clear inflection point for policymakers to respond to the Libra Association proposal before the entity is even up and running.

You can count on BCMstrategy, Inc. to keep a keen eye on these developments, quantifying the risks and identifying inflection points as they arise.

Participation in the Pilot Program is available to a small number of carefully selected companies. If your company is interested in participating, please reach contact us for an initial conversation and a demo.

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