Why did IMF & FSB propose regulations on cryptocurrencies? What impact do they have on the future development of cryptocurrencies?

Last week (9/4-9/10), the cryptocurrency market exhibited mainly sideways movement with minimal volatility.

The total market capitalization remained close to $1.04 trillion, showing little change. The market sentiment index initially dropped from 44 to 40 but rebounded to 42, still below the September high and with limited upward momentum.

Currently, both indicators continue to exhibit weak trends, potentially leading to new lows in nearly three months.

Cryptocurrency Market Cap (Yellow) & Fear-Greed Index (Blue) Trend from 01/01/2023 to 09/10/2023; Source: MacroMicro.

Major cryptocurrencies continued their downward trend, mostly closing lower. Stellar (XLM) performed the best with a 7% increase, followed by Chainlink (LINK) which showed no decline with a volatility range of 0.

Bitcoin (BTC) exhibited no volatility and increased its market share by 0.3%, currently at 48.6%. Ethereum (ETH) experienced a 1% price decline and a 0.1% decrease in market dominance, maintaining 18.8%.

On September 7th, the International Monetary Fund (IMF) and Financial Stability Board (FSB) jointly released "Policies for Crypto-Assets." The report stated that cryptocurrencies have yet to prove their usefulness as claimed by proponents and may pose certain threats to the financial system. However, the use of cryptocurrencies should not be banned but rather controlled.

Regarding regulatory measures, the report proposed five aspects: fiat currencies, taxation, regulation, data, and stablecoins:

1. Fiat currencies: Cryptocurrencies should not be granted legal or official currency status, and should not be considered official reserve assets.

2. Taxation: Clear taxation policies for cryptocurrencies should be established, and authorities should cooperate in cross-border information sharing and financial regulation.

3. Regulation: Authorities should exercise their powers based on the risks associated with cryptocurrencies, and jurisdictions should update or clarify laws applicable to cryptocurrencies.

4. Data: Authorities should establish systems and processes to collect, store, protect, and report cryptocurrency data accurately and in real time.

5. Stablecoins: Issuers of stablecoins and related parties should provide comprehensive and transparent information to market participants. Authorities should require robust legal claims from stablecoins and ensure timely redemption.

Fourteen years ago, Bitcoin was officially introduced, marking the emergence of a new form of finance known as cryptocurrency. However, at that time, cryptocurrencies were not well-regarded; they were often ridiculed, mocked, and even suppressed by traditional financial professionals, investors, and regulators. 

Today, cryptocurrencies have grown significantly and gained substantial stature and influence as an important asset class. As mentioned by the IMF and FSB, crypto-assets may pose certain threats to the financial system.

As a result, regulatory institutions such as the IMF and FSB have recognized the importance of regulating cryptocurrency. Hence, the joint release of this report (and proposed measures) represents the proactive regulatory attitude and direction of various countries. 

It serves as a foundation for future formulation of cryptocurrency regulations, ensuring compliant and legitimate development. This report is a significant positive development.

On September 7th, stimulated by the positive news mentioned above, Bitcoin experienced an upward trend, rising from $25,600 to around $26,400, an increase of about 3%.

However, the upward trend did not continue, and the next day a bearish candle formed, creating a bearish engulfing pattern. Since then, the daily chart has shown three consecutive bearish candles, dominated by bearish sentiment.

Bitcoin daily price chart, source: TradingView.

Since September, BTC's price trend has been relatively weak, but it has not fallen below the key support level of $25,000. Therefore, in the short term, one can expect a rebound at this level. It is important to note that there is significant downside potential below this level, so if it is breached, stop-loss measures should be taken to avoid substantial losses.