HSBC this week completed the world’s first commercially viable trade-finance transaction using blockchain, the shared ledger technology. Blockchain also powers cryptocurrencies such as Bitcoin.
Cryptocurrencies are coming under increasing scrutiny, with calls for them to be regulated. Bitcoin is the biggest of them. Some people claim regulation will lead to greater transparency and safer investments. Others argue it will undermine its value and decentralised character.
We asked MBA students from some of the world’s top business schools for their views. Join in the discussion in the comments below.
Marco D’Egidio, MIP Politecnico di Milano
Regulation might have a “decoupling effect” on Bitcoin and blockchain. Bitcoin could initially suffer from restrictions, but such rules may also be seen as an inevitable requirement for entering the real economy.
Developments which create negative sentiment around cryptocurrency should be expected to have an adverse price impact
On the other hand, regulation could implicitly legitimise and push applications of blockchain in other sectors, mainly commercial and industrial, as the recent HSBC first trade-finance deal seems to show.
The future appears promising for an enabling technology like blockchain. Bitcoin’s success, meanwhile, will depend more on the framework, if any, that lawmakers decide to put in place.
Christian Pemberton, Judge Business School, University of Cambridge
The lack of regulation is a large part of the appeal of Bitcoin and other cryptocurrencies. This appeal derives from a mistrust of central banks and governments. But many people are suspicious of Bitcoin because of this lack of regulation.
Bitcoin is being used in a wide spectrum of criminal activities, such as money laundering and tax evasion. Regulation would provide a veil of legitimacy and respectability to Bitcoin, but the real impact on Bitcoin’s value will depend on the breadth and depth of any new rules.
Georgie Hazel, University of Exeter Business School
The clarity offered by regulation would probably increase the perceived legitimacy of virtual currencies.
My vote is for regulation [acting like a] speed-bump in the short term, but an incentive in the longer term, boosting value and offering protection for investors.
Speculation around regulation will probably cause greater volatility in the Bitcoin price than actual implementation. When investors are unsure about the legitimacy of their cryptocurrency and how they are going to be taxed when they sell it, they will probably avoid or at least hold it until clarification is given.
Regulation could come in a number of forms, from reducing anonymity through demanding real names on Bitcoin holdings and transactions, to outright bans (as in India). The trends in South Korea, with an initial plunge followed by a levelling out as the effects were clarified, is likely to offer a framework for other regions. The UK could do worse than following Japan ’s lead, developing regulations that support the healthy growth of the technology.
Richard Durant, Nanyang Business School, Singapore
Bitcoin’s price is driven by speculation from investors that either have a deep belief in blockchain technology or are seeking short-term capital gains.
Any developments that create negative sentiment around cryptocurrency should be expected to have an adverse price impact, including regulation.
Ultimately the value of Bitcoin will not be determined by regulation, but its utility in real world applications, including as a payment system or as a store of value. In the long term, regulation could be positive for cryptocurrencies as it will help to legitimise them as an asset class and provide protection for investors, accelerating their adoption.
Just because the underlying blockchain technology has value, it does not necessarily mean that Bitcoin has value.
Neha Jha — Nanyang Business School, Singapore
Factors such as volatility, regulatory pressures and lack of an intrinsic value prevent Bitcoin from being a credible currency.
The value of Bitcoin is derived from an idea of decentralisation, so the inclusion of counterparties or regulatory bodies that force regulation and control defeats its purpose.
But amid growing concerns over manipulation of value through questionable practices and companies’ increasingly leveraging initial coin offerings to raise funds, regulation seems unavoidable.
However, Bitcoin represents a very minuscule portion of the potential of blockchain technology. The shared ledger technology is already being adopted by a number of industries and could proliferate through financial services, the public sector, retail and manufacturing.