Having been involved with digital currencies for quite a long time, I get more information on the subject than most people, and that includes information on what regulators are doing. I've been seeing differing strategies among the central banks for some time. But some information I obtained recently made the Euro–American difference very plain to me, and I think I should pass it along.
The US Model
It seems to me that this model is being spawned by the Treasury and associated agencies, rather than the Federal Reserve, but the Fed is such a black box that I can't say for sure.
The model developing in the US is to take advantage of cryptocurrencies (that is, Bitcoin and its children), rather than trying to kill them outright. And there are serious advantages to this strategy. Here's what they're doing:
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The Treasury is reaping from the rise of Bitcoin, Ethereum, and the others. Capital gains taxes run in the 20–25% range, and with crypto prices surging every couple of years, that brings in some significant revenue. Accordingly, the IRS has made compliance easy, treating crypto gains precisely like gains in precious metals. Everyone understands that and knows how to deal with it. Exchanges like Coinbase are being quietly forced to comply with whatever the US government wants.
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They are moving to swallow up crypto incrementally. Regulators are surrounding the crypto scene gently, not aggressively. They show up at meetings and ask questions, rather than threatening people. They bring in crypto advocates to make presentations at their offices. Little by little, they're not only learning how to deal with crypto but are convincing susceptible people that “a little regulation is necessary” because of scammers, hackers, or whatever flavor of fear seems to be working that month.
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They are allowing Wall Street to take incremental steps into crypto. They are making them go slowly, presumably not wanting to stoke crypto's fires, but they are allowing fully regulated and compliant firms to slide in. They've rejected all the ETF (exchange traded fund) proposals thus far, but that will likely change at some point, bringing higher and higher percentages of crypto holdings under their control. (Directly controlled by Goldman, etc., but ultimately controlled by the feds: Stockbrokers always comply.)
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Thus far they are holding the line at tax compliance for daily commerce. The obvious model for that would be how gold is handled, with transactions under a certain amount being exempt from reporting. And while laws have been proposed for this, none have been permitted to pass. What the feds want is to reap capital gains and discourage commerce.
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They are paying people whom I can describe only as sellouts to do blockchain analysis, hoping to attain a useful level of surveillance.
The financial power elite were actively seducing early Bitcoin developers for a while, but that seems not to have worked terribly well. Bitcoin, after all, is just a computer program, and no one by themselves can control it. (Neither can it ever go broke, but that's another story.)
The Euro Strategy
The strategy across the Pond is quite different. There, aggressive subversion is under way, mainly by the ECB (European Central Bank). Laws have been passed in some countries to explicitly make every tiny transaction a taxable event. This will have unintended consequences, but its goal is simply fear.
Laws have also been passed making cryptocurrency wallets illegal to sell or distribute, unless the wallet forces a user to comply with AML (anti money laundering) rules.
Behind the scenes, the Euro regulators are getting very aggressive. We know someone on the board of a bank in a smallish European country, in other words, a voice from the inside. Here's what that voice has told us:
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Crypto is totally evil according to the central bank. It's absolutely radioactive for us. We are barely allowed to talk about it, let alone do something distantly related to it. We can't even lend to an entity that does crypto. We as bankers are not naturally against crypto as is often cited, but one step into the crypto arena and we would have regulators all over us.
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Our central bank gets its marching orders from the ECB, and the ECB's reach extends to other central banks. The press here is full of articles on how other countries are obstructing crypto.
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This reminds me of the huge effort in AML. The public may hear little but it's a massive issue in the financial sector and is at the crux of the battle on crypto. AML has become a monster that has vastly outgrown its initial purpose. (Or perhaps it is doing exactly what someone really wanted it to do.) It is a huge, expensive, and quite effective spy mechanism.
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The financial system has been turned into a massive database and search engine for authorities. It is a major weapon in the financial wars of the day and may be more effective than conventional weapons. In decades of banking I've never seen anything like it. Initially most bankers brushed it off as just another nuisance regulation, but this was not the case. This is a worldwide effort.
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If you don't cooperate, you are cut off. You basically can't make a mistake without very heavy penalties. You have to report on your customers or else you will look like you are not a player. The whole model is very Soviet and it works almost worldwide. Most bankers feel it is political issue wrapped in financial regulatory clothing. It's hard for the public to understand, and politicians won't touch it.
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The authorities are coming down on all institutions in the region. Correspondent lines are being cut… High-ranking US financial officials make house calls to all the finance ministries in the region and remind them about how compliance complements military and other aid… some of those compliance issues are such a hot potato that few managers are even willing to talk about them. [The financial elite] finally have open season on financial data and they don't want anyone taking that stick away, including crypto.
Final Thoughts
So, there you have it. What to do about all this is a second question, but this is pretty clearly what's going on at present.
Act carefully, but do not stop building the future.
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The 20th century, for better or worse, is over. This book was written from the trenches of the new data wars. It offers a raw, apolitical view of what is happening and where the practice of intelligence is headed.
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Paul Rosenberg www.freemansperspective.com