Analysis of the reasons for the sharp drop in Bitcoin: Is the Trump administration going to "take action" at the last minute?

Source: Wall Street Journal

Original title: "The reason for the sharp drop in Bitcoin: Is the Trump administration going to "take action" at the last minute?"

Coinbase CEO Brian Armstrong late Wednesday slammed a rumored U.S. Treasury Department plan to try to track owners of cryptocurrency wallets and everyone involved in a transaction.

The plan, which is rumored to be executed by outgoing Treasury Secretary Mnuchin, would, if implemented, suppress a core principle of the cryptocurrency ethos — that private cryptocurrencies are free from harassment and tracking.

Specifically, the proposed regulation would require financial institutions like Coinbase to verify the owner of a cryptocurrency wallet and collect their identity information before sending digital currency to that cryptocurrency wallet. In addition, the data would be logged.

Affected by the rumor, the price of Bitcoin plummeted from its highs and once fell below US$17,000 to US$16,580, with a 24-hour drop of 12.96% and a trading volume of over US$37.5 billion.

Far-reaching impact

If this policy is implemented, it will have a far-reaching impact on the entire cryptocurrency industry. This policy will not only affect people who store digital currencies on hardware devices such as Trezor or Ledger. For other crypto services, using non-custodial wallets, decentralized finance (DeFi) smart contract software wallets, etc., they all need to prove their identity under the rules and can only trade under supervision.

Such policies are not without precedent around the world, with the Financial Action Task Force on Money Laundering (FATF) guidelines already in place in Switzerland and the Netherlands. In these countries, virtual asset service providers (VASPs) must prove ownership of non-custodial crypto wallets before transactions can take place.

Armstrong said such a policy would be a terrible political legacy of the Trump administration and would have a long-term negative impact on the United States. And the additional transaction friction would kill many emerging encryption technology applications, including every digital asset.

Jacob Farber, a partner at blockchain law and consulting firm Ouroboros LLP, said that imposing KYC requirements on transactions between each wallet expands the scope of regulation of cryptocurrencies, which will change the meaning of cryptocurrencies to a certain extent and make it no longer an alternative to traditional finance. Farber also believes that Armstrong's concerns are justified and said that these potential regulations should be formulated and complied with by the cryptocurrency community.

Concerns in the cryptocurrency world

Armstrong's criticism caused a strong response on the Internet, and many of his ideas became public consensus.

In recent days, multiple cryptocurrency organizations have launched lobbying campaigns to shape public opinion for deregulation.

Among them, Coin Center published an article on November 18 about the serious consequences of cryptocurrency wallet restrictions; Coinbase released a 50-page guide for policymakers at the same time.

Coinbase executive director Kristin Smith told CoinDesk that the Blockchain Association has long been aware of the regulatory trends of some regulators in the United States and abroad toward cryptocurrency wallets, and they are actively appealing to officials in the executive and legislative branches to dispel misunderstandings about cryptocurrency wallets.