QOTD -- Crypto & COVID19, not a pretty combo

For the last few years, the crypto community has been railing against the establishment central banks. They have been crowing about the superiority of their blockchain-based currencies as the future of finance. This community so far is not having a good crisis.


Consider today's statement from the UK's Financial Conduct Authority:


Crypto enthusiasts will celebrate the superiority of a blockchain-based currency that does not experience physical challenges regarding access to fully stocked ATMs or the ability to leave the safety of home to acquire cash.


Before getting carried away with a victory dance, the cryptocurrency community needs to pay attention to the second half of the statement. "Going viral" used to be a good thing before COVID19 stormed the world. In this context, going viral with an electronic currency means reaching a large number of individuals who are insufficiently familiar with the technology to know how to access their own funds or, worse yet, exposes vulnerable populations to fraudsters.


Worse for the crypto community, consumer behavior during the panicked month of March indicates strong demand for sovereign currencies even as tech-savvy BitCoin holders apparently are dumping their electronic holdings in favor of cold hard cash.


This is not a commentary on the crashing value of BitCoin or the accelerating flight to safety in dollar-denominated assets. It is not a commentary on the considerable value associated with coordinated human liquidity support operations across central banks as we saw on Sunday and will likely continue to see for quite some time.


It is a commentary on the user base for cryptocurrencies is voting with its feet while expansion efforts to other communities could falter due to an inability to understand the technology.


The policy environment after the health crisis may also be less welcoming in the future. A society and governments mobilized to protect human life even at the expense of social functions and economic distress may be less forgiving in the future about high-tech opportunities to take advantage of vulnerable populations. "Consumer protection" may take on a much larger role after the crisis has passed.


In the short term, cryptocurrency firms may celebrate yesterday's CFTC announcement that the CFTC will soon finalize the 2017 proposal that will likely endorse a 2-day delivery period (rather than a 28 day delivery period) for commodities transactions involving virtual and electronic currencies. This may be a Pyrrhic victory if the FCA quote above indicates broad policy priorities with respect to individuals that do not meet the "sophisticated investor" standard.

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