The classification of cryptocurrencies as securities by the US Security Exchange (SEC) financial regulators could see an avalanche of capital inflows by institutions in 2022.
Cryptocurrencies are frequently referred to as digital assets by the media and cryptocurrency investors. But in reality, until SEC Chair Gary Gensler rubber stamps cryptocurrencies as security, their official status is in limbo.
So the cryptocurrency market, with a 2.08 T global market cap, which is more than the GDP of Russia, Portugal, and Denmark combined, is sailing to the promised land without an official asset title. Amazing what free people can create when the government and regulators take a back seat.
But the wild west cryptocurrency market has become too big for the regulators and the IRS to ignore, so regulation is coming.
“the cryptocurrency market, with a 2.08 T global market cap, which is more than the GDP of Russia, Portugal, and Denmark combined, is sailing to the promised land without an official asset title”
Investors should not fear cryptocurrency regulations and embrace them instead
A regulated cryptocurrency market will be sold by the SEC as being in the public interest, which is double-speak for the IRS and SEC wanting their piece of the action.
The free-range golden goose will be farmed by the big club.
So the imminent SEC legitimization of cryptocurrencies by classifying cryptocurrencies as security is likely to trigger an avalanche of institutional funds into the two trillion dollars and counting cryptocurrency market.
Some of the world’s largest pension funds which oversee 2.72 trillion USD in assets under management are not allowed to directly invest in an asset not classified as a security by the SEC.
“A regulated cryptocurrency market will be sold by the SEC as being in the public interest, which is double-speak for the IRS and SEC wanting their peace of the action”
“You get to invest in this token or that token, but there needs to be some basic disclosures against lies and fraud to protect the investing public,” said SEC Chair Gary Gensler.
But how do you apply tax law to an asset with no legal definition?
“cryptocurrencies with utility will do well, including blockchain token which facilitates web 3.0” – Win Investing
As soon as SEC officially classifies the cryptocurrency space then that could be a floodgate moment for an unprecedented amount of institutions investing in the space
Keep in mind financial markets are extremely challenging for income-seeking investors, particularly pension funds. Real yields are in negative territory when inflation figures are factor into the equation and US stocks are pricey with valuations of 211%, according to the Buffett Indicator. Income starved institutional investors are looking for a place to go.
As we wrote in a piece entitled, Under The Cryptocurrency Bonnet cryptocurrencies with utility will do well, including blockchain token which facilitates web 3.0.
So in a three-dimensional world imagine a chain that has utility. It can either drive the wheel of a bike, or a cutting saw or create electricity. What gives the chain value is its utility but the moment the integrity of the chain is broken it no longer serves its function and has no value.
So it is the integrity of the blockchain, the imputability of the network, that the link is solid and extremely difficult to hack that give the network utility and value.
The fact that you need resources in a room full of computers running complex encryption software to gain access to the private keys, and large amounts of energy to power the network makes the network more challenging to hack. So we believe high value will be assigned in terms of gas fees to the most secure blockchains. Perhaps this is where income-starved institutional investors will go.