Unrest in Kazakhstan Shakes the Crypto Market and Shows Its Vulnerability as a Global Currency
Political instability in Kazakhstan was at the center of the past week as major cryptocurrencies like Bitcoin and Ethereum lost a significant portion of their value.
Sources familiar with the situation say the selloff was triggered by the central government’s decision to shut down the internet, taking nearly 88,000 regional mines offline and lowering the total global hashrate, the amount of energy used to mine Bitcoin, from almost 11% overnight.
The event reveals the vulnerability of cryptocurrencies to non-market forces, with government action and regulation emerging as two major hurdles for an industry seeking to challenge the US dollar and other fiat currencies for international monetary hegemony.
“State control of internet access is obviously of concern, especially when states have the unilateral ability to shut down the internet for political purposes,” said a cryptocurrency expert. Newsweek on condition of anonymity.
“I think we’re going to see more around crypto the same way we’ve seen with social media,” the source added. “When there are protests, some governments choose to shut down social media and we’ll likely see the same with cryptocurrencies.”
Speaking on the same point, Alan Dorjiyev, President of the National Association of Blockchain and Data Center Industry in Kazakhstan, said Newsweek that, “In the medium term, the biggest impediment to the industry is regulation, with countries wanting to use cryptocurrency and local governments preventing it.”
Bitcoin was originally created as a digital alternative to fiat currencies, allowing users to circumvent the authority of banks and governments. But as cryptocurrency grows in popularity and becomes more involved in finance and commerce, it may no longer be able to escape regulation, he said.
TripleA, a Singapore-based crypto company that, according to its website, “helps businesses increase revenue by accessing growing cryptocurrency users,” estimates that more than 300 million people currently use or own cryptocurrency assets. cryptocurrency. India leads with over 100 million users, followed by Nigeria and the United States.
Most of this adoption has taken place in the past two years, with total cryptocurrency market capitalization soaring over 900%, from around $200 billion in 2019 to over $2 trillion. today.
The growing popularity of cryptocurrencies like Bitcoin, Ethereum or stablecoins, as well as decentralized finance (DeFi) and non-fungible tokens (NFT), has sparked the interest of institutional investors and individuals.
At the same time, massive price volatility, an upsurge in cryptocurrency scams and hacks, and the possibility of tax evasion have alarmed central governments and regulators around the world, prompting them to act.
Government responses and regulations to this emerging industry range from outright banning mining operations to adopting crypto as legal tender.
US Federal Reserve Chairman Jerome Powell and Security and Exchange Commission Chairman Gary Gensler have both expressed concern over the lack of standard cryptocurrency regulation.
Powell told reporters in December that he views cryptocurrencies as “really speculative assets.” But despite some initial hesitation, a formal regulatory framework is currently being discussed by Congress and the Federal Reserve.
“Smart legislation is on the way in the coming months,” said Senator Cynthia Lummis of Wyoming, Bitcoin holder and congressional crypto champion.
Some are optimistic about the effects of regulation on markets, such as Peiying Chua, financial regulation partner at global law firm Linklaters, who told Forkast that “increased regulation can encourage growth in this sector as investors are reassured by regulatory oversight once the rules of the road for digital assets are clear. »
On the other hand, Colin Harper, Head of Content and Research at Luxor, said Newsweek that he would prefer the industry to remain largely unregulated, although he recognizes that some level of regulation is unavoidable.
“I could see the value for a government wanting to have structures in place,” he said. “But if I was a government, the only thing I would want to think about is how to tax it and prevent illegal transactions.”
If cryptocurrency is not properly regulated, he argues, it risks losing its key value proposition.
“If you bring cryptocurrency into the financial regulations that we have for legacy assets,” he said, “it kind of loses its purpose.”
Citing political instability, stock market crashes and rapidly rising inflation around the world, Dorjiyev of Kazakhstan said that as the fiat currencies of countries like Turkey or Nigeria experience devaluation, the decentralized nature of cryptocurrencies will allow individual users to protect themselves financially.
“Most fiat currencies are about hope and belief,” he said. “Their main disadvantage is that without a fixed amount of money, you can easily print five million dollars tomorrow. It will lead to something bad.”
“This whole generation of millennials tends not to trust the current monetary system because it doesn’t seem to work,” Dorjiyev added.
Harper of Luxor agreed with Dorjiyev’s assessment.
“Millennials don’t own a lot of assets, stocks, or even their own homes,” he said. “They’re looking for something to actually have an interest in.”
“The internet has opened up opportunities that weren’t available to our parents or previous generations,” he added, “and a lot of people see cryptocurrency as a way out.”
Despite ongoing conversations about effective regulation in the United States, Harper noted that national governments have mostly shown little interest in the principles that led to the creation of cryptocurrency.
“Congress has failed to get input from the people pulling the levers in many parts of this industry,” he said.
The unnamed industry source said Newsweek that the crypto debate is actually about human rights.
“If individuals have a basic human right around freedom of expression and choice, does that apply to the currencies they can access?” he said. “I would say yes.”
Dorjiyev sees the rise of cryptocurrencies as inevitable.
“The old generation is retiring and the new generation is coming,” he said.