In some ways, 2019 was not all that remarkable to the crypto community. In other ways, it was. We saw some very interesting developments within the cryptocurrency space over the last 12 months. How those developments play out in the coming months will be fun to watch. If nothing else, the coming year could eventually go on to prove whether or not cryptocurrency truly is a valuable asset to world economics.
This post will recap the top five crypto stories of 2019. Note that what you read here is a matter of opinion. You may find that our chosen stories are not as important as some others the crypto community has talked about. That's fine. One of the great things about the crypto community is the fact that there is room for plenty of different ideas and opinions.
5. Tax enforcement in the USA
Like so many other countries, the U.S. has not vigorously enforced tax laws against cryptocurrency holders over the years. Among the many problems they face is the ambiguous nature of cryptocurrency trading, combined with the many government agencies that claim to have jurisdiction over the industry. Still, all of that changed when the IRS began sending out warning letters to crypto owners early in 2019.
Those letters were the result of two new guidelines issued by the IRS. The guidelines clarified some of the ambiguities crypto owners could previously rely on to avoid paying taxes. Furthermore, crypto owners have been put on notice that the IRS intends to be more aggressive in its enforcement efforts.
If there is any good news, it is the fact that the new guidelines do not carry the force of regulation. Moreover, they only answer some of the questions. There is still plenty of contradictory regulatory language that the IRS still has to settle. Until that happens, some cryptocurrency owners will be able to continue avoiding taxation. How long that lasts is anyone's guess.
4. Friendlier attitudes in France
France is another country that seems to have done an about-face regarding cryptocurrency. Once one of the harshest critics of crypto, France now sees a future in which its economy is driven by a digital euro. They are already implementing plans to move in that direction.
The Bank of France recently announced a pilot project involving a central bank digital currency said to be equal in value to the euro. The currency will be made available to financial institutions for the purposes of making bank-to-bank payments and handling settlements.
Starting with settlements gives French banking institutions an opportunity to familiarize themselves with the blockchain principle and develop their own policies long before the digital euro is ready for retail use. But make no mistake, retail use is the eventual goal.
On a secondary note, the French government announced in September 2019 that cryptocurrency trades will no longer be taxed as long as they are coin-to-coin transactions. Any profits made by selling cryptocurrency assets for fiat will still be subject to tax.
3. Lowering the bar in Venezuela
Venezuela became the first country to launch an official cryptocurrency when it introduced Petro back in 2018. The currency has done very little since then. What is the problem? Petro is a stablecoin backed by Venezuela's oil assets. The country's biggest challenge is that it cannot sell its oil due to economic sanctions enforced by the US.
For 2019, the most significant development in Venezuela is the lowering of the bar, so to speak. Where the government previously said Petro would be backed by 5 billion barrels of oil, they substantially reduced that number to 30 million during Q4 2019. That is a pretty big drop off.
It is believed that reducing Petro's backing is the result of Venezuela not being able to sell enough oil on the open market. As you probably know, Venezuela has been the target of US sanctions for several years now. Even the country's allies are wary of purchasing oil from it. There seems to be no point of risking a global backlash when there are so many other sources of oil ready and willing to sell.
Venezuelan citizens are understandably skeptical of the value of Petro in real terms. It is fine to say that the currency is backed by oil assets, but such backing is a mere illusion if Venezuela cannot sell its oil. Further complicating the matter is the fact that government officials want to sell the oil for Petro, meaning customers would have to purchase the currency first.
The government has also taken the step of converting pension bonuses to Petro. Regular bonuses were converted in 2018; pensioner Christmas bonuses were converted to Petro this year. It is quite possible that all pension payments will eventually be made in Petro at some point in the future.
Venezuela finds itself in a unique position of having its own central bank digital currency but without anyone willing to actually use it. Expect 2020 to be the year that the government starts aggressively pushing merchants and corporations alike to eschew fiat in favor of Petro. Meanwhile, citizens will continue accepting Bitcoin remittances from relatives who have left the country.
2. China gets serious about crypto
As we have reported with regularity over the last several months, China used 2019 to get serious about cryptocurrency. They did so on several fronts: regulatory, technological development, and central banking. The world can no longer ignore what China does in the crypto space.
In the regulatory arena, the Chinese government created a brand-new framework for 2020 and beyond. The framework governs blockchain applications - both financial and otherwise - as China seeks to become a world leader in all things blockchain. The framework ostensibly supports blockchain development but keeps certain cryptocurrencies at bay.
In terms of technological development, Chinese leaders have become increasingly more supportive. They are looking to encourage more development through homegrown companies and a limited amount of foreign involvement. Government leaders see the Chinese population, now in excess of 1 billion, as the perfect audience for pursuing strategies of mass cryptocurrency adoption.
Finally, the People's Bank of China has gone all-in on developing its own digital currency. That currency will be tested over the next 3-to-6 months by six of China's most powerful commercial banks in partnership with three telecoms. Bank officials have been upfront about their goal of eventually replacing the nation's cash with a digital alternative. They also believe their digital currency could replace the U.S. dollar as the world's preferred reserve. Achieving both goals may be more difficult than Chinese officials believe.
1. Facebook's Libra announcement
It is hard to argue against Facebook's Libra announcement being the most important story within the cryptocurrency community for 2019. Those of us who follow industry developments knew of Facebook's plans, at least in principle, long before the announcement was made in June 2019. But when Facebook finally stepped up to the mic and introduced the world to Libra and Calibra, they changed everything. Facebook suddenly became a cryptocurrency force to be reckoned with.
Almost immediately, U.S. regulators began questioning whether or not Facebook can be trusted with its own digital currency. They were soon followed by lawmakers in Germany, France, others in the EU, etc. China got in on the game as well. Working on their own stablecoin project, China went into overdrive to get their coin ready for launch before Libra hit the market.
Leaders in Germany and France went as far as to publicly commit to fighting against Libra ever being established in Europe. And of course, the EU is now accelerating its push for a central bank digital currency in hopes of circumventing Libra.
Most ironic is the fact that Libra might not get off the ground anyway. In an SEC filing over the summer of 2019, Facebook admitted that Libra is uncharted territory for them. They admitted to not knowing what they were doing, even speculating that their stablecoin might never be released. Such an outcome looks ever more realistic as governments ramp up regulatory efforts in hopes of preventing Libra from becoming anything more than a specialized token for limited Facebook use.
It is believed that Facebook will have to convince U.S. regulators to let it launch if Libra is ever to get off the ground. However, that may not be the case. Facebook's Libra Association, the quasi-independent association formed to govern Libra, is based in Geneva. Facebook could make the Association a completely independent entity and simply bypass launching Libra in the U.S. and Europe. They would still have all of Indonesia and many parts of Asia and South America to work with.
As we open the book on 2020, no one really knows where cryptocurrency will go over the next 12 months. It is probably safe to say that it is not going to fade away. Cryptocurrency has proved its longevity despite so many critics dismissing it as a passing fad as late as 2017. It is no passing fad.
Cryptocurrency is likely to have a place at the economic table for the foreseeable future. It may never become the drop-in replacement for fiat worldwide, but it will serve some purpose. Perhaps we will get closer to that purpose as 2020 unfolds.