The Ministry of Finance is working on regulations concerning requirements for cryptocurrency exchanges, which are also to be subject to the provisions of the Act on Counteracting Money Laundering and Terrorist Financing. These provisions are to be included in the law implementing the EU’s AMLD IV (Fourth Anti-Money Laundering Directive).
Do they pose a threat to bitcoin and other cryptocurrencies?
The inclusion of cryptocurrencies and portfolio management software companies under the Anti-Money Laundering and Financing of Terrorism Act may be perceived by some as an attack on the cryptocurrencies. This movement should, however, be read as the legislators’ perception of the growing importance of the digital currency market. Cryptocurrency exchanges, prediction markets, and the blockchain prediction will not be in any way depreciated or pressurized by higher regulatory requirements. They will simply have to apply to their customers the security measures that other similar institutions have to apply. Among other things, they will have to carefully analyze their clients and report suspicious transactions to the relevant authorities.
Covering the market with anti-money laundering and anti-terrorist financing regulations seems to be an obvious step because digital currencies, due to the anonymity of ownership, are an ideal tool for criminal activities, which was often reported by supervisory institutions from Poland and Europe.
The cryptocurrency market is not monitored in the same way as the banking market, thanks to which criminals can operate outside the field of view of law enforcement authorities. Additionally, cryptocurrency transfers are much more convenient and safer for them than using cash.
In the context of money laundering, we can use a very fresh example from Poland. It concerns the laundering of money obtained from the sale of fictitious invoices. In order to make it more difficult for you to detect fraud, fraudsters are laundering illegally acquired funds using the cryptocurrency market, namely a larger European player and Bitcoin. Thanks to this, they prevented the detection of people sending and receiving money, using the anonymity offered by the cryptocurrencies.
All that remains is to ask whether the regulations related to monitoring the crypto transactions will be sufficiently ‘tight’ to prevent illegal activity. The General Inspector of Financial Information (GIIF) will be responsible for verifying the compliance of companies with the requirements. However, it is difficult to say whether the new rules will provide it with sufficient tools to monitor all cryptocurrency transactions.
Can a lack of anonymity weaken the cryptocurrency position?
Activities aimed at reducing the anonymity of the cryptocurrency users make them lose one of their main advantages in the eyes of people interested in using them and investing capital on the digital currency market.
It is the anonymity that is mentioned as one of the main attributes of a cryptocurrency which makes them attractive to a certain part of the society, discouraged from fiduciary money. Can the weakening of one of the fundamental advantages of digital currencies negatively influence their popularity and price increase? Not necessarily. It is enough to pay attention to the fact that bitcoin price increases have not slowed down, despite the fact that at this moment it loses another of its fundamental advantages, i.e. the speed of transactions/transfers and low costs of such operations. Currently, in the case of bitcoin, we can put this argument between fairy tales and if someone today would like to send the bitcoin cheaply as a gift for Christmas, then do not catch up on Christmas with this! Fast and cheap transfers are now possible thanks to other cryptocurrencies, but it is the price of bitcoin, due to its popularity, that is growing dynamically.
The main advantages of BTC are decentralization, limited supply, anonymity, and fast and low transaction costs. It seems that, in fact, an unquestionable feature, in the case of limiting anonymity on the market, only the first of them will remain cryptocurrency. Of course, the limited supply of bitcoin is a fact, but it is increasingly pointed out that this argument is weakened by the subsequent divisions of the chain of this cryptocurrency, within which new coins are created (such as bitcoin cash or bitcoin gold). Most of them do not keep up with the popularity of classical Bitcoin. This is currently the case with Bitcoin cash, which is gaining in value when the price of the original bitcoin drops.
If the classic bitcoin continues to maintain its dynamic growth trend while further weakening its foundations, it will once again give skeptics arguments to call it a speculative bubble. If buyers still argue their decisions with the above-mentioned values of bitcoin, its price will be based on unreal premises, detached from the internal value, which is the basic criterion of the speculative bubble. Of course, on the other hand, there are arguments that bitcoin functions are slowly shifting from transaction to value storage, but they need to be approached skeptically – but this is a topic for a separate material.