Kazakhstan Unrest Roils Crypto Market, Reveals Vulnerability as International Forex

Political instability in Kazakhstan took center stage last week as major cryptocurrencies like Bitcoin and Ethereum lost a significant chunk of their value.

Sources close to the situation say the selloff was triggered by the central government’s decision to shut down the internet, shut down nearly 88,000 regional mines and the total global hashrate, the amount of energy used to mine bitcoin will drop by nearly 11% overnight.

The event showcases cryptocurrency’s vulnerability to extra-market forces, with government action and regulation emerging as two key obstacles for an industry seeking to challenge the US dollar and other fiat currencies for international monetary hegemony.

“Government control of internet access is obviously a concern, especially when states are unilaterally able to shut down the internet for political purposes,” a cryptocurrency expert told Newsweek on condition of anonymity.

“I think we’re going to see more of that in crypto just like we’ve seen in social media,” the source added. “If there are protests, some governments choose to shut down social media and we’ll likely see the same thing with cryptocurrencies.”

On the same point, Alan Dorjiyev, president of the National Association of Blockchain and Data Centers Industry in Kazakhstan, told Newsweek, “In the medium term, the biggest obstacle for the industry is regulation, countries that want to use cryptocurrencies and local governments preventing it.”

Bitcoin was originally created as a digital alternative to fiat currencies, allowing users to bypass the authority of banks and governments. But as the cryptocurrency gains popularity and becomes increasingly entangled in finance and commerce, it may no longer be able to evade regulation, he said.

TripleA, a Singapore-based crypto company that, according to its website, “helps businesses grow their revenue by accessing the growing base of cryptocurrency users,” estimates that over 300 million people are currently using or owning cryptocurrency assets. India leads the way with over 100 million users, followed by Nigeria and the United States.

Most of this adoption has occurred in the past two years, with the total cryptocurrency market cap growing by over 900% from around $200 billion in 2019 to more than $2 trillion today.

The increasing popularity of cryptocurrencies such as Bitcoin, Ethereum or stablecoins as well as decentralized finance (DeFi) and non-fungible tokens (NFTs) has attracted the interest of both institutional and private investors.

At the same time, massive price swings, a rise in cryptocurrency fraud and hacks, and the possibility of tax evasion have alarmed central governments and regulators around the world, urging them to act.

Government responses and regulations to this burgeoning industry have ranged from an outright ban on mining operations to the adoption of crypto as legal tender.

Federal Reserve Chair Jerome Powell and Security and Exchange Commission Chair Gary Gensler have both expressed concern about the lack of standard cryptocurrency regulations.

Powell told reporters in December that he considers cryptocurrencies “really speculative assets.” But despite initial hesitation, an official 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 owner and congressional crypto champion.

Some are optimistic about regulation’s impact on markets, such as Peiying Chua, partner in financial regulation at global law firm Linklaters, who told Forkast, “Increased regulation can boost growth in this industry as investors move away from the… Take comfort from regulatory oversight once the rules are in place Digital assets roadmap made clear.”

On the other hand, Colin Harper, Luxor’s head of content and research, told Newsweek that he would prefer the industry to remain largely unregulated, although he acknowledges that some level of regulation is inevitable.

“I could see the value for a government that wants to have some structure,” he said. “But if I were a government, all I would want to think about is how to tax them and how to prevent illegal transactions.”

If misregulated, cryptocurrency risks losing its core value proposition, he argues.

“If you embed cryptocurrency in the financial regulations that we have for legacy issues,” he said, “in a way it loses its purpose.”

Citing political instability, market crashes and rapidly rising inflation around the world, Kazakhstan’s Dorjiyev said that given the devaluation of fiat currencies in countries like Turkey or Nigeria, the decentralized nature of cryptocurrencies will allow individual users to protect themselves financially .

“Most fiat currencies are a matter of hope and faith,” he said. “Their main disadvantage is that without a fixed amount of money, you can easily print five million dollars tomorrow. This will lead to something bad.”

“This whole generation of millennials tends not to trust the current monetary system because it doesn’t seem like it’s working,” Dorjiyev added.

Luxor’s Harper 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 they actually have a stake in.”

“The internet has opened up opportunities that weren’t available to our parents or previous generations,” he added, “and many people see cryptocurrency as a way out.”

Despite ongoing talks about effective regulation in the US, Harper noted that national governments have, for the most part, shown little interest in the principles that led to the creation of cryptocurrency.

“Congress hasn’t done a good job of actually getting input from the people who are pulling the levers in many areas of this industry,” he said.

The anonymous industry source told Newsweek that the crypto debate is actually about human rights.

“If individuals have a basic human right to freedom of expression and choice, does that apply to the currencies they can access?” he said. “I would argue that it does.”

Dorjiyev sees the rise of cryptocurrencies as inevitable.

“The old generation is retiring and the new generation is coming,” he said.

Jack Dorsey (left, pictured at the Bitcoin 2021 Convention on June 04, 2021 in Miami, Florida) and Elon Musk (right, pictured on December 01, 2020 in Berlin, Germany) have been at the forefront of promoting the use of cryptocurrency.
Joe Raedle/Getty Images/Britta Pedersen-Pool/Getty Images

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