Kazakhstan Unrest Roils Crypto Market, Shows Vulnerability as Global Currency

Political instability in Kazakhstan was on top last week, with major cryptocurrencies such as Bitcoin and Ethereum losing a significant portion of their value.

Sources close to the situation say the sell-off was sparked by the central government’s decision to shut down the internet, removing nearly 88,000 regional miners from connectivity and reducing the total global hash rate, the amount of energy used to mine bitcoin, by nearly 11% overnight.

The event exposes the vulnerability of cryptocurrencies to non-market forces, with government actions and regulation emerging as major obstacles for an industry seeking to challenge the US dollar and other fiat currencies for dominance of international currencies.

“It is clear that state control of internet access is worrisome, especially when states have the unilateral ability to be able to shut down the internet for political purposes,” said the cryptocurrency expert. NEWSWEEK On condition of anonymity.

“I think we’ll see more of that around cryptocurrencies in the same way we’ve seen it happen on social media,” the source added. “When there are protests, some governments choose to shut down social media and we will likely see the same with crypto.”

Speaking on the same point, Alan Dorgiev, President of the National Association of Blockchain Industry and Data Centers in Kazakhstan, said, NEWSWEEK That “in the medium term, the biggest obstacle for the industry is regulation, and countries that want to use cryptocurrency and local governments prevent it.”

Bitcoin was initially created as a digital alternative to fiat currencies, allowing users to circumvent the power of banks and governments. But as cryptocurrency gains popularity and becomes increasingly involved in finance and commerce, it may no longer be able to escape regulation, he said.

Triple Eye, a Singapore-based crypto company that according to its website “helps businesses increase their revenue by reaching out to growing crypto users,” estimates that more than 300 million people currently use or own crypto assets. India leads the way with more than 100 million users, followed by Nigeria and the United States.

Most of this adoption has come in the past two years, as the total market capitalization of cryptocurrencies has increased over 900%, from nearly $200 billion in 2019 to more than $2 trillion today.

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

At the same time, massive price volatility, a sudden rise in cryptocurrency-related fraud and hacking, and the opportunity for tax evasion have alarmed central governments and regulators around the world, prompting them to take action.

Government responses and regulations for this emerging industry have ranged from a total ban on mining operations to the adoption of cryptocurrency as legal tender.

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

Powell told reporters in December that he views cryptocurrencies as a “truly speculative asset.” But despite some initially 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 Loomis of Wyoming, a bitcoin holder and crypto champion in Congress.

Some are optimistic about the effects of regulation on markets, such as Bieng Chua, partner in financial regulation at global law firm Linklaters, who told Forkast that “increased regulation could encourage growth in this industry, as investors feel comfortable with regulatory oversight once rules clear the way for digital assets.”

On the other hand, said Colin Harper, Head of Content and Research Department at Luxor NEWSWEEK He prefers that the industry remain largely unregulated, though he admits that some level of regulation is inevitable.

“I can see the value of the government wanting to have some structures in place,” he said. “But if I’m a government, the only thing I’d like to think about is how to tax it and prevent illegal transactions.”

He argues that if cryptocurrency is improperly regulated, it risks losing its main value proposition.

“If you include cryptocurrency in the financial regulations we have for legacy assets, it somehow loses its purpose,” he said.

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

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

“This entire generation of millennials has a tendency to distrust the current monetary system because it seems to be not working,” Dorgiev added.

Harper in Shorter agreed with Dorgiev’s assessment.

“Millennials don’t own many assets, or stocks, or even their own homes,” he said. “They are looking for something that they already have an interest in.”

He added: “The Internet has opened up opportunities that our parents or previous generations did not have, and many people see cryptocurrency as a way out of that.”

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

“Congress has not done a good job of getting input from people who are putting pressure on a lot of parts of this industry,” he said.

An anonymous industry source said NEWSWEEK The debate about cryptocurrency is actually about human rights.

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

Dorgiev 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 Agreement on June 4, 2021 in Miami, Florida) and Elon Musk (pictured right on December 01, 2020 in Berlin, Germany) have been at the forefront of promoting the use of cryptocurrencies.
Joe Riddell / Getty Images / Britta Pedersen-Paul / Getty Images