The crypto industry has made tremendous progress since its inception, pushing the boundaries of innovation, breaking records and defying expectations, but it never managed to get rid of one thorny problem that has always stood in the way of achieving mainstream acceptance, namely legitimacy. Despite the massive attention they’ve been getting both as a payment solution and investment venue, 15 years after Bitcoin’s birth, digital assets are still stuck in limbo, lacking the support of governments, insurance companies or financial organizations.
So, it’s not a matter of earning worldwide popularity or people finding the best way to buy Bitcoin and other notable coins and exploring their potential as alternative financial tools. Crypto has already ticked those boxes long ago. Now it needs endorsement from state agencies and official authorities to enjoy the same standing as established assets like stocks, bonds, real estate or cash equivalents.
So far, only two countries have granted crypto legal tender status: El Salvador in 2021 and the Central African Republic (CAF) the following year. As for the rest of the world, governments have adopted different approaches to crypto’s legality, ranging from permissive or partial acceptance to restriction or full prohibition, but for the most part, crypto has been kept at the fringes of the financial system, being treated as a commodity, a property or an illegal asset class.
What is keeping governments from accepting crypto?
Many assume that the majority of governments refuse to accept Bitcoin and altcoins as legal tenders due to their novelty and complexity. Crypto assets have only been around for 15 years and they haven’t had enough time to reach maturity. Besides, the market has experienced a staggering development and regulators haven’t been able to keep up pace with it.
However true this might be, crypto’s legitimacy problem runs much deeper than that. One must first understand how fiat money works to become aware of the challenges that crypto poses in terms of government adoption. There are several stakeholders involved in the issuance, supply control and transaction of fiat currencies, with central banks standing at the top of the system. All these entities are trusted and recognized by the government and work together to ensure the validity of the monetary mechanism they create.
While critics of the traditional banking system point out its inefficiency, lack of transparency, limited access, the risk of manipulation and corruption, Bitcoin and Co. doesn’t seem to provide a viable solution either as it comes with its own set of flaws.
For starters, Crypto’s decentralized nature goes against the founding principles of the current financial structure and proposes a new order instead, one in which the government’s involvement is not needed. The agents that oversee the functioning of the financial network are therefore replaced with blockchain technology which has trustlessness as its core element. This would imply a major shift from what we’ve known so far and creates a contradiction that seems impossible to reconcile.
If the volatile crypto assets were put on par with fiat money, governments would most likely lose control over their countries’ financial markets. While some praise crypto precisely for its ability to circumvent government controls, to have this happen at a large scale could destabilize economic ecosystems around the world and no one knows how far-reaching the consequences might be.
With financial institutions and authorities out of the picture, the crypto space can become a fertile ground for illicit activities. Digital assets have been linked to all sorts of financial crimes such as money laundering, fraud, ransomware exertion, scams, sale of illegal goods, bribery and more. While crypto transactions are not anonymous, the blockchain only tracks the addresses of participants so it’s extremely difficult to detect who is behind a crypto transaction.
Regulations pose another major challenge for governments across the world in terms of crypto adoption. Countries cannot embrace crypto assets without first having a solid legal framework to cover them. Unfortunately, the difficulties in devising viable standards for digital currencies and the different approaches in this respect or lack thereof have led to an inconsistent and disparate regulatory landscape.
Are spot Bitcoin ETFs the game-changers they were thought to be?
Crypto’s disruptive nature and its ability to revolutionize the financial sector are overshadowed by its lack of legitimacy stemming from the aforementioned issues. In this sea of uncertainty and doubt, the potential approval of a spot Bitcoin exchange-traded fund brought a glimmer of hope, promising to bring more visibility and legitimacy to crypto assets.
Most of the crypto narrative in 2023 revolved around this fateful moment. Then on January 10, 2024, after much deliberation and several delays, the U.S. Securities and Exchange Commission (SEC) finally approved 11 spot Bitcoin ETFs. Emotions and expectations were running high that this would be a historical moment and usher in a new era for the cryptocurrency industry. So, was this the big breakthrough that crypto enthusiasts were envisioning?
The approval caused quite a stir, not exactly because of its legitimization implications but because of the SEC’s X account hack which led to a fake announcement that preceded the official one. Although the launch of spot Bitcoin ETFs is largely regarded as a vote of confidence for the industry, allowing investors to gain direct exposure to Bitcoin which could potentially draw in new investors to the crypto market, nothing remarkable happened since then. To sum things up, instead of a seismic shift we got radio silence.
After the spot Bitcoin ETFs received the green light from the SEC, the price performance of Bitcoin and other major coins was rather underwhelming. The SEC chair Gary Gensler also pointed out that the approval does not equate to an endorsement of digital assets.
However, it might be that it’s still too early to appraise the impact of spot Bitcoin ETFs on the crypto sector and the effects will only become visible later on. This gives stakeholders another reason to keep a close eye on the evolution of the market in the long term.
