Worldwide, the cryptocurrency market is to some extent unregulated or at least loosely regulated by local and often outdated laws that were not originally intended for cryptocurrencies. With the growing market cap of the crypto space and growing on-chain activity over the past year, regulators are increasing their focus on cryptocurrencies. Market participants should be increasingly aware of how regulation can affect the market both positively and negatively.
Lately, stablecoins - cryptocurrencies that attempt to peg their market value to some external reference by pegging, for example, a currency such as the US dollar or the price of metals such as gold - have attracted the attention of regulators. That's because supply has jumped from $29 billion to $123 billion year-to-date and over the past week, several major US-based newspapers have reported that stablecoins are arguably the most important conversation in Washington financial circles as i regulators are examining how to regulate their exchanges. According to Bloomberg, the authorities are even considering instituting a formal review by the Financial Stability Oversight Council to conclude whether or not stablecoins pose a threat to the economy.
The market impact of stablecoin regulation should not be underestimated as they serve as the cornerstone of the cryptocurrency market, the most traded currency pairs include stablecoins, considering that most decentralized financial protocols are based on stablecoins. On the other hand, the regulation of these cryptocurrencies can probably emerge as a positive thing because a proper regulatory framework and clarity for regulated entities can bring more stability.
In Russia, the Central Bank has reportedly issued guidelines intended for banks to persuade them to stop trading fiat (fiat money is a national currency not pegged to the price of a commodity such as gold or silver) with cryptocurrencies.
The intention is to avoid "emotional" purchases of cryptocurrencies by Russian investors, and thus protect them from losses if the market were to collapse, or at least this is the declared intention of the central bank. Over the years, there have been repeated discussions of an outright cryptocurrency ban in Russia, though it never went into effect. Uzbekistan, on the other hand, banned cryptocurrency payments in late 2019 and the country will likely never ease that ban, at least according to statements last week by the vice president of the Central Bank of Uzbekistan who said: “Le cryptocurrencies are not backed by anything”.
Last week, Turkish President Recep Tayyip Erdoğan hosted a question-and-answer session where his opinion on cryptocurrencies was asked, to which he replied: “We have absolutely no intention of embracing cryptocurrencies,” the clear answer by Erdoğan. the Turkish president added that the country is antithetical to cryptocurrencies as it is working on the central bank's launch of a digital currency. As confirmed by the Governor of the Central Bank of Turkey Naci Ağbal, the Institute will start the first tests on its CBDC digital currency (central bank digital currency) by the end of the year.
Capital investment is making its way into cryptocurrencies
The past month has been quite extraordinary in terms of venture capital invested in cryptocurrency and blockchain companies and projects. According to TheBlock, nearly $2,1 billion has been invested in industry companies in 124 funding rounds. In the second quarter of 2021, a total of $4,38 billion was raised compared to $2,89 billion in the first quarter. With cryptocurrency Avalanche raising $230 million last week, this third quarter will likely exceed the total amount invested in the second quarter. In essence, the increase in investment activity in cryptocurrency and blockchain companies and projects indicates a growing trust in companies and projects serving this industry.
The Solana network suffered an 18-hour outage
Speaking of raising money, Solana, currently the 314th largest cryptocurrency by market capitalization and which raised $18 million in June this year, experienced an approximately 18-hour outage last week. During this time, users were unable to submit transactions and interact with the network as a whole, meaning funds on the blockchain were inaccessible, including stablecoins. With Solana officially in beta, the outage was due to the network being flooded with an unmanageable amount of transactions leading to the network going down. Subsequently, a software update was promptly implemented to prevent the issue from happening again, with further developments to follow to make the solution more stable. The outage shows how fragile cryptocurrencies are currently, especially the newer ones that have not been tested under all conditions. To sum up, the outage probably doesn't help form favorable regulation of stablecoins, as it doesn't make sense to have billions of stablecoins on an inaccessible network for about XNUMX hours.
