Why this economist believes we’re going to see heightened scrutiny and regulatory activity for cryptocurrency
RSM Chief Economist Joe Brusuelas joined Yahoo Finance Live to break down the cryptocurrency market and if we’re going to see heightened scrutiny and regulatory activity.
Video transcript
ADAM SHAPIRO: We want to talking about what happened with Bitcoin over the weekend because what a roller coaster. Joe Bruselas is RSM US LLP chief economist. He's joining us. It's always good to see you, Joe. And when anything drops 14%, almost $10,000, in the course of an hour, you have to say, in addition to the things you can't say on live television or streams, you have to ask what is going on here? So, your take on all of this because there's a whole lot of regulation that could be following in.
JOE BRUSELAS: Sure, so Bitcoin's entering its infant stages of doubt and somewhat some insecurity here. We're going to go through some growing pains, right? We've got a highly speculative asset that's clearly not a store of value. It's not going to replace the dollar. It's a highly speculative asset that is now entering the phase where it's going to come under increased regulatory scrutiny. And you could see Bitcoin enthusiasts begin to sort of hedge their positions. I think when you take a look at this, right, and you think OK, is this a mature industry, it's probably not.
On one hand, I see Coinbase, very impressive. There's a lot of enthusiasm out there for that amongst the retail investors. But you also see Dogecoin. Dogecoin, of course, was started in 2013 as a joke. It is a joke. The question you have to ask here, is this industry mature enough to where it can police itself, or are the risks to retail investors so sufficient that we're going to see heightened scrutiny and regulatory activity? And I tend to lean towards the latter as explaining the sharp drop we've seen in past days in the value of these highly speculative cyber assets.
SEANA SMITH: Joe, would you say that the activity over the last couple of days, the large drop that we've seen, has this kind of undone the notion out there that maybe Bitcoin and some of these other crypto assets aren't as risky as they once were because of the increased involvement that we're seeing from some institutional investors?
JOE BRUSELAS: Well, I think there are some people out there who were trying to make that argument. I don't know that that was ever going to be conventional wisdom. It's certainly not my observation or evaluation of a crypto space. Look, just because a couple of big institutions are dipping their tone doesn't going to mean that it's going to lend complete credibility to this asset class. Probably what you want to look at is the stepped up amount of lobbying that's going on in Washington, DC right now.
It's a classic two-level game. Those who have entered the market over the past 10 years are now trying to erect barriers to entry to keep other competitors from getting in. And second, they're going to try to limit the extent to which the regulatory authorities, you know, are going to put constraints on this. You know, I'm probably like a lot of economists out there. We look at this and we think, OK, this isn't a currency. 10 years ago, everybody was talking about how it was going to be the substitute for the US dollar.
OK, that's clearly not the case if you look at the discourse around the asset class. Take the Winklevoss twins, for example. They're no longer talking about it as a currency. They're talking about it as a substitute for gold. OK, sure. I get where you're going on that. I can see where you want to build that business.
But when I look at this, I still think of Bitcoin as what was the medium of exchange along Silk Road that caused the FBI to crack down on the use of this 2013, right? That's why you're beginning to hear the word-- or you're beginning to hear words such as money laundering around this. And that's a clear concern, especially if you're not a, what I'd call, fully informed crypto enthusiast. Yeah.
ADAM SHAPIRO: But when we talk about Bitcoin, we had a guest on about a month, month and a half ago, who kind of schooled me, when I brought up that issue of money laundering. And they said that, look, Bitcoin every-- I don't want to say token, but every nugget of Bitcoin and its derivatives, there is blockchain that identifies the owner. Therefore, when I pointed out when they hack school systems and demand ransom, they want it in Bitcoin, I was trying to make the argument that just because that might be the case, it's still hard to trace all of this. Are you saying that it is hard to trace and that they are using it for money laundering, and that's where governments are going to crack down?
JOE BRUSELAS: Yes, I am. And I mean, I watch lots of interesting strategists and crypto enthusiasts come on the air and talk about this. But at the end of the day, it's what Janet Yellen thinks. It's what Jay Powell thinks. It's what Gary Gensler thinks. That's what's going to determine the scope of the regulatory activity around this. I mean, if you're a corporation and you've got clients who are interested in proving their payment systems around blockchain, OK, that's a very legitimate business.
But you have to protect your reputation and you have to refer to these as highly speculative assets. Therefore, as we see what's going on with Dogecoin, right, which is clearly not, let's say, extending the legitimate underpinnings of capitalism because it looks like very savvy investors are taking advantage of not so very savvy investors, all right, maybe that's not what you want if you really believe in this as an asset class, right?
And we are at that hinge point here, I think, with respect to this asset class. Is it mature enough to police its own and really move to sort of put a lid on these jokes like Dogecoin? Or is this simply the Wild, Wild West and we're going to tell ourselves, well, this is how markets operate? I have to tell you folks, the people who are in charge of the regulatory agencies they don't see that this way.
ADAM SHAPIRO: And while the world may care what Powell and Yellen have to say at $55,000 a Bitcoin, Joe Bruselas, our investors care what you have to say. RSM US LLP chief economist, it's always good to see you, Joe. Be well.
