Regulation in Cross-border Cryptocurrency Payments: How Is International Adoption Changing the Rules of the Game?

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Crypto and regulation

In 2020 there was a paradigm shift around the world towards the adoption of cryptocurrencies. Many central banks have publicly stated their intention to launch or at least explore sovereign digital currencies. The move is significant for the crypto and blockchain ecosystem, as it adds credence to the idea that this new asset class is here to stay.

The perception towards Bitcoin is not the same today as it was a couple of years ago. For instance, JP Morgan, one of the biggest investment banks in the US, believes that Bitcoin competes with gold as an alternative asset in the long  term. Indeed, the multinational investment bank asserted that the adoption of Bitcoin by institutional investors has only begun and will help the cryptocurrency market grow towards enterprise-grade infrastructure and standards.

For example, we used to think that Visa had a very negative attitude towards cryptocurrency, but we turned out to be completely wrong. They are, in fact, interested in crypto projects. The problem is that many banks and traditional payment systems need to be educated by crypto firms about their businesses – we do this to show that there is nothing wrong with the operations we perform. The infrastructure necessary for cryptocurrency services to operate efficiently is not ready yet, but we are steadily moving in that direction.

While cryptocurrencies begin to take part in the global financial system, many countries are adapting to the growing trend. China, Singapore, Estonia, Sweden, UK and Japan are some of the nations looking into the idea of introducing their own CBDCs (central bank digital currencies).

European Central Bank (ECB) president Christine Lagard mentioned earlier that a digital euro would allow the EU to be at the cutting edge of innovation as it has fallen behind in this competition. The idea is that this new technology can be used to make settling financial transactions more efficient and expand the accessibility of payment systems to a wider audience.

Cryptocurrencies in cross-border payments

Bitcoin meets the characteristics of a store-of-value asset. It can retain the amount invested in it over long periods, given its core economic principles derived from its limited supply. Such an important feature allows it to maintain its purchasing power and usefulness in the future despite its high volatility.

But due to Bitcoin’s proclivity for price fluctuations, it does not fit the requirements necessary to function as a token for international settlements. So, if we’re going to see crypto used efficiently in cross-border payments, it will not be via Bitcoin. Instead, stablecoins are a better candidate, in my opinion.

Stablecoins are pegged to the value of fiat currencies, which helps them avoid periods of high volatility. They are more beneficial than traditional currencies as they enable direct payments without third parties, making transactions faster, cheaper and limitless.

Stablecoins can even be programmed, allowing for new and more efficient forms of financial services. With smart contracts, remitters can determine how the funds will be used ahead of time.

While there has been some opposition from global leaders to allow the use of stablecoins since they pose a threat to the financial system, the idea of sovereign digital currencies is gradually gaining traction worldwide.

In a few years, we will likely see US-regulated stablecoins. The US dollar is the dominant currency in the world. Since the issuers of dollar stablecoins will be locally regulated by the US, stablecoins as an instrument of influence in the field of payments will be led by the United States.

As the whole world seems to be moving towards adopting cryptocurrencies in some shape or form, legislation is stepping up to provide a legal framework for regulating these assets. Soon we will likely see cryptocurrencies regulated similarly to how electronic money is controlled today.

These efforts will set the stage for enterprise-grade infrastructure solutions and foster crypto adoption on a global scale.

What we can expect from this field in 2021 and onwards

We have seen a rising interest in cryptocurrencies among institutional and retail investors, including those not related to the crypto industry. By now, more than 30 publicly traded companies have disclosed that they are holding cryptocurrencies on their balance sheets, with the total sum held being over $32 billion.

This new asset class’s growing adoption paints a picture of a positive development for the entire crypto industry in 2021 and beyond. Fidelity, a multinational financial services corporation, maintains that the institutional capital influx will continue to accelerate as more investors familiarize themselves with crypto.

Such demand from high-net-worth players will pressure regulators to bring more clarity into the cryptocurrency industry, allowing this space to continue to grow and thrive.

Petr Kozyakov
Petr Kozyakov, co-founder and CBDO of Mercuryo. A businessman with skills in sales, strategic development, partnership negotiations and client relations. He has a strong background in the payments industry and extensive experience working with European markets. His responsibilities at Mercuryo include interaction with payment partners and banks, launching new products, obtaining licenses and the company’s strategic development. Petr also has vast experience working with banks and financial institutions to launch and build new financial products.

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