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Bitcoin's Existential Threat

Mar. 09, 2020 5:06 PM ETBitcoin USD (BTC-USD)29 Comments
Richard Durant profile picture
Richard Durant


  • Despite opinion to the contrary, it is possible for governments to ban cryptocurrencies, but this likely would have already been done if this is what governments desired.
  • If governments want to restrict the usage of cryptocurrencies, it will likely be done by controlling the flow of money into and out of the fiat system.
  • With the possibility of an outright ban remote, increased regulation should be viewed as a positive as it will help to legitimize cryptocurrencies as an alternative asset class.

After coming through the 2018 bear market relatively unscathed, the biggest threat to cryptocurrencies now appears to be regulation. Regulation of cryptocurrencies globally is developing but is still minimal in comparison to traditional financial markets. Increased regulation of cryptocurrencies should be viewed as a positive as it will reduce uncertainty and increase protection for investors, helping to legitimize cryptocurrencies as an asset class. Currently, there is minimal protection, and unsophisticated investors can easily be taken advantage of or enticed into investment vehicles without fully understanding the risks. Investors who view cryptocurrencies primarily as a means to avoid government control are likely to be disappointed by regulatory developments as governments will seek to ensure cryptocurrencies are not used to finance crime or avoid taxes.

The complexity of cryptocurrencies and their rapid adoption by a wide user base have left regulators playing catch up. So far, the general goal of regulators has been to protect the investing public, maintain market stability, and prevent theft, fraud, market manipulation and money laundering. There is also the issue of regulatory arbitrage to consider with some jurisdictions taking a favorable view with the aim of encouraging the growth of a local cryptocurrency industry. In some cases, regulators have appeared loathe to introduce regulation for fear of stifling innovation or legitimizing cryptocurrencies as an asset class. More extensive regulation may also be considered unnecessary at this stage as cryptocurrency markets are currently not large enough to cause systemic problems, but their persistence and growth will inevitably lead to more regulation.


There are a number of reasons why governments would want to restrict or regulate the usage of cryptocurrencies, including:

  • To maintain control over citizens
  • Fear of losing their monopoly right to issue currency
  • To prevent the financing of crime
  • To prevent tax evasion
  • To protect consumers

This article was written by

Richard Durant profile picture
Richard Durant is the leader of Narweena, an asset manager focused on finding market dislocations that are the result of a poor understanding of a businesses long-term prospects. Narweena believes that excess risk adjusted returns can be achieved by identifying businesses with secular growth opportunities in markets with barriers to entry. Narweena’s research process is focused on company and industry fundamentals with the goal of uncovering unique insights. Narweena has a high risk appetite and a long-term horizon, in pursuit of stocks that are deeply undervalued. Coverage tilts towards smaller cap stocks and markets where competitive advantages are not obvious.Investments are driven by a belief that an aging population with low population growth and stagnating productivity growth will create a different opportunity set to what has worked in the past. Many industries are likely to face stagnation or secular decline, which counter-intuitively may improve business performance if competition decreases. Conversely, other businesses are likely to face rising costs and diseconomies of scale. In addition, economies are becoming increasingly dominated by asset light businesses, and the need for infrastructure investments is declining over time. As a result, a large pool of capital is chasing a limited set of investment opportunities, which is driving up asset prices and compressing risk premia over time.Durant has undergraduate degrees in engineering and finance from the University of Adelaide (Honors) and an MBA from Nanyang Technological University (Dean’s Honors List). He has also passed the CFA exams.Durant also publishes musings on technology and its long-term impact on economic development on Substack (http://richarddurant.substack.com).

Analyst’s Disclosure: I am/we are long BTC-USD. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (29)

panzer profile picture
@Richard Durant Your bitcoin articles are excellent. If the pattern (which is based on logic and rationality) repeats, bitcoin is now on the launching pad after this consolidation
alejrossi profile picture
Wow!!! God Almighty! This bitcoin correction is worse than a divorce!!!!!!! You lose 50% of your money, but the wife is still at home when you come at night!!!!!!!!!!!!
I tried to buy hand sanitizer and toilet paper with this garbage during the whole panic buying saga couple of weeks ago and the local grocery store plain refused to accept it. That’s how “valuable” this sham is for the average individual. No wonder it’s been dropping like crazy. Even during such times of colossal uncertainty, no one significant enough seems to think this garbage has any “value”, intrinsic, stored or otherwise.
GR Value profile picture
Bitcoin is worth about 1 penny. I don't know who holds or buys it. I don't really care. Maybe if the markets continue falling this will go back to 1 penny it's fair value. Just saying.
Its worth as much a any fiat currency is.
Henry Miles profile picture

No, it is not. Fiat currencies are issued by governments who can tax their citizens. (Your statement is irresponsible.)
GR Value profile picture

Most Fiat currency doesn't fluctuate (much), it's a store of value.

Bitcoin was worth $10,000 a month go now it's worth half that. It fluctuates like a dot com with $1 revenues, $0 profits, with a market cap of 50 billion.
Good. Let the past die...
lol wut profile picture
I agree government will not be the bottleneck.

US Gov auctions off seized bitcoins... it does not auction off seized drugs.
you said
"regulatory developments as governments will seek to ensure cryptocurrencies are not used to finance crime or avoid taxes."
kind like fiat to me.
Pundits may claim that Bitcoin cannot be banned but I don’t see that as particularly relevant because

1) governments can certainly ban the use of Bitcoin as a legal means of payment at any location that wishes to utilize credit and debit cards.

2) they can also ban Bitcoin from being transferred to bank accounts in any bank that wishes to operate legally.

3) and they can leave Bitcoin as it is for now and simply monitor the transactions (being that they are not particularly anonymous).
Yeah but why discuss the most unlikely scenarios? There’s no way in hell the lawyers/consultants at Coinbase, Fidelity or ICE would of advised their clients to continue operations if it was at risk of being shutdown.
@R. Myers Yes they can "ban" it just like they "banned" pirating and downloading of movies. It just does not work very well with something that is digital and international.
@Cedrick yea here I was not intending for the ban to block people from buying and selling Bitcoin directly. But they can ban it from being useful in real life through the first two measures I listed (if they are implemented globally just like some other monetary transaction rules are).
riddix profile picture
Bitcoin can’t be banned. Limited the on and off ramps will just encourage people to trade on decentralized exchanges. China “banned” bitcoin years ago, yet Chinese citizens continue to use bitcoin frequently.
Gordon Shumway profile picture
TLDR: Bitcoin has no existential threat. Governments could ban it, but they haven’t yet and are unlikely to now.
even if they don't ban it for financial reasons, I can see some governments banning it because of CO2 emissions. Especially if/when sensible PoS implementations are figured out, Bitcoin would do well to move to PoS to cut emissions. If however PoS proves impossible, or much less secure than PoW, we may see some governments ban BTC mining. I haven't looked into PoS recently to see what progress has been made.
Banning btc mining comes at a high national risk. If you ban and I don’t then I will grow stronger if btc works. And all those smart rich tech kids will leave your country begging their return. Game theory at its finest. Bitcoin has to break its old highs first.
@Alistair Stewart I highly doubt it, those reports of how much CO2 emission Bitcoin mining causes are just randomly made guestimates. They just assume most of the energy used is not clean and they just assume most hardware used are not very efficient. While the opposite in most cases are true.
jimbo162 profile picture
Well written and thoughtful Richard. Bitcoin has been in need of regulation for years, much foul play exists and there are many bad actors. Governments have been relatively clueless on how and what to regulate, so far. As i see it regulators have tried to put or define crypto as a currency (it isn't) or a commodity (it isn't) or a security (it isn't)....the world has never seen anything quite like it before. Where will it go or evolve from here, is really the question but regulation will point it in the right direction for better or worse.
Exit Strategy profile picture
Your first why "To maintain control over citizens" is the big one. The real issue is about liberty vs. control. We often hear how we need to trade privacy for security in the growing surveillance state, but that’s a false dichotomy because we can have both security and privacy.

Quoting Bruce Schneier from a 2008 article: "Privacy no longer can mean anonymity," says Donald Kerr, principal deputy director of national intelligence. "Instead, it should mean that government and businesses properly safeguard people's private communications and financial information." Did you catch that? You're expected to give up control of your privacy to others, who -- presumably -- get to decide how much of it you deserve. That's what loss of liberty looks like...

"If you set up the false dichotomy, of course people will choose security over privacy -- especially if you scare them first. But it's still a false dichotomy. There is no security without privacy. And liberty requires both security and privacy. The famous quote attributed to Benjamin Franklin reads: "Those who would give up essential liberty to purchase a little temporary safety, deserve neither liberty nor safety." It's also true that those who would give up privacy for security are likely to end up with neither."
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