Crypto sector: the big strategy shift and its consequences

The year 2021 has shown just how powerful the state can be in the crypto sector. Many a vocal crypto veteran has had to be meek on Twitter and the like to avoid falling out of favor. How the new political influence is affecting the direction of the crypto sector and what strategies have already been copied from other industries.

That states are tightening regulation in the crypto sector is something everyone has noticed by now. Former rebels who don’t want to be told anything by the state have now become tender little lambs. The year 2021 has shown more than ever how much the blockchain sector is forced to adapt.

The main thing is compliant: rebels are dying out

This shift in strategy is embodied particularly obviously by Binance CEO Changpeng Zhao (aka “CZ”). As the largest crypto exchange, Binance has made a fortune operating in a gray area. Meaning, what Binance does is by no means illegal, but it largely lacks the national approvals from the respective financial regulators to be allowed to advertise the business regionally. At the same time, numerous jurisdictions have issued warning notices about Binance. In short, CZ has had to realize that it won’t be able to get away with its old strategy in the long run. Especially since competitors like Coinbase are going hand in hand with regulators and enjoying licenses to grow their business regionally, like in Germany in particular.

Instead of ranting about regulation, CZ has now turned 180 degrees – at least in outward appearance. CZ regularly flatters the authorities and proclaims on Twitter how important strict regulation is after all. The highest regulatory standards are now the company’s No. 1 priority and are presented in external communications as a matter of the heart by the Twitter-addicted CEO. Credible is different. But it shows the power of government regulation. Even crypto corporations with gigantic pots of capital have to bow to regulations in the end.

The classic: supposed self-regulation

An absolute classic in the history of industries coming under government fire is the expansion of proactive self-regulation. This strategy involves trying to get ahead of the state in order to suppress the threat of excessive regulation in advance. Consider, for example, the alcohol industry, which has repeatedly tried to impose its own industry standards to protect consumption – keyword: responsible drinking.

This strategy tool is now being pursued by, among others, the newly founded industry initiative Cryptocurrency Compliance Cooperative (CCC) from the USA. The Bitcoin ATM companies Coinsource and Digital Mint founded this initiative in August to meet the money laundering concerns of the state. Their own high standards are intended to prevent criminals or tax evaders from misusing Bitcoin ATMs for money laundering.

Green Mining as a Voluntary Compulsory Event

The newly founded Bitcoin Mining Council is taking a similar approach. After a heated public discussion about Bitcoin’s power consumption erupted this spring, the initiative has set itself the goal of promoting sustainable mining. Drawcards like Michael Saylor and Elon Musk are backing the initiative to promote green Bitcoin mining to improve its public image. Finally, some states are using Bitcoin’s high energy consumption to justify a mining ban. The sooner the industry turns to completely renewable energy, the better the chances of escaping restrictive regulation.

Elon Musk finally had to experience for himself just how great the pressure is. Thus, the richest man in the world had to buckle and reject the planned Bitcoin payments for Tesla models. The Silicon Valley rebel has thus subordinated himself to public pressure, similar to Binance CEO CZ. Only when mining has a high enough level of renewable energy, the Tesla CEO wants to accept Bitcoin payments for his electric cars.

Decided fate for the crypto sector?

Like other sectors, the crypto industry cannot escape the issues of sustainability and social corporate responsibility (CSR) without facing massive economic disadvantages. Not everyone may welcome this adaptation, but it is ultimately part of a professionalization. After all, it is no longer primarily about private customers who, in case of doubt, also resort to crypto exchanges and custody services that do not meet the highest regulatory standards.

Institutional investors are a different story. A German asset management company will therefore, in case of doubt, conduct its crypto business via Coinbase, rather than Binance. Also, in most cases, institutional investors have to justify what they invest in. Should these be bitcoin mining facilities that are operated via coal-fired power, for example, then they may also find themselves in need of explanation.

So it is not only the increasingly strict government regulation that is forcing the crypto industry to make certain changes, but also the new customer base, ergo the B2B business. It’s no secret that that’s where most of the money is and not with private customers.