Crypto: What Does Dogecoin Have To Do With Government Bans?

Dogecoin is not a cryptocurrency you would expect to read about much in this column since it is not exactly an “institutional-grade” asset.

It has a market cap of over $8 billion at the time of writing (less than 1/100th of bitcoin’s), no unique use case and no lively derivatives market.

But bear with me while I explain why it embodies two key themes impacting institutional interest in crypto assets: the role of “fundamentals,” and the likelihood of successful government bans.

The power of enthusiasm

At the time of writing, Dogecoin is up almost 1,350% so far this year. Last week, rapper Snoop Dogg temporarily rechristened himself Snoop Doge. Kiss frontman Gene Simmons topped that with a “God of Dogecoin” tweet. Kevin Jonas of the Jonas Brothers joined in. Elon Musk has inspired so many Doge memes that it would be impossible to list them all here. This is getting fun in a wacky “whatever” kind of way.

But should “fun” drive value?

Why not? As we saw with the GameStop drama, the market’s understanding of “value” is shifting. The relentless rise of the stock market despite record uncertainty and risk, and the relatively new phenomenon of day-trader media stars, show that performance is increasingly a matter of message in a world where messages are coming at us thick, fast and everywhere.

Crypto: What Does Dogecoin Have To Do With Government Bans?

Bloomberg columnist Matt Levine summed it up perfectly:

“Money and value are coordination games; what we use for money depends on the channels that we use to coordinate social activity. Once society was mediated by governments, and we used fiat currency. Now society is mediated by Twitter and Reddit and Elon Musk, so, sure, Dogecoin.”

The Dogecoin phenomenon may be a flash in the pan, and our attention may shift to something else tomorrow.

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Or maybe not. The cryptocurrency’s co-founder Billy Markus told Bloomberg this week that he was “baffled” by the coin’s continued success, more than seven years after launch. The other co-founder Jackson Palmer said last year that it “makes no sense for people to have this devotion to it.” But here’s the thing: neither co-founder can do anything about it. Dogecoin runs on a public, decentralized blockchain that no one controls. It may dwindle into insignificance as people move on to the next shiny thing. But as long as there are fans who enjoy the silliness, it will have value.

Stop the tide

Which brings us to India and Nigeria (still with me?), which this week seemed to forget how public blockchains work.

In January, we reported the Indian Parliament was considering a government-sponsored bill that would ban cryptocurrencies. Needless to say, the community jumped into action with the #IndiaWantsBitcoin campaign, rallying citizens to email their government representatives to ask for progressive legislation.

Among the many arguments against the ban is the damage it would do to a lively ecosystem that includes 10-20 million cryptocurrency users, 340 startups and 50,000 employees. The full contents of the bill are not yet public, but it seems to be intent on clearing the field for a government-backed digital rupee.

Hopefully, the Indian government will learn from Nigeria.

Last week, the Central Bank of Nigeria (CBN) ordered banks to close the accounts of cryptocurrency users. In response to the ensuing outcry, the CBN issued a press statement reminding the public that the rule was not new and that it was for their own good.

The notable thing here is that the CBN felt the need to respond to social protest. This is possible because of the still-fresh memory of the #EndSARS movement which rocked the country late last year, in which mass protests combined with global online support achieved the dissolution of a federal police unit with a reputation for fierce brutality.

This week, a court ordered the CBN to unblock the accounts of 20 people who had been involved in the movement. The fact that the accounts were frozen in the first place is one of the many reasons seizure-resistant cryptocurrencies are rapidly gaining in popularity amongst Nigeria’s young.

Another reason is the country’s reputation as Africa’s “Silicon Valley.” Lagos is the largest city on the continent, with a rapidly growing tech community. It is also a country with inflation of over 12% and almost 30% unemployment, where the young account for 70% of the workforce and where trading crypto assets is a way of life for many. A report this week showed that almost a third of Nigerians say they own cryptocurrency, making it the most invested country in Statista’s Global Consumer Survey.

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The CBN’s actions are being presented on social media as a generational call to arms where the young, tech-savvy army has new tools in its arsenal and a deepening disrespect for institutions. Sound familiar?

They’re also not giving up on crypto. Exchanges such as Binance have been affected because local payment partners are no longer willing to deal with them due to the directive. But sources confirm that trading is moving to peer-to-peer channels.

What’s more, the #EndSARS movement has not gone away even after its victory. It is now attacking what it sees as repression more broadly, and could end up uniting with the #WeWantOurCryptoBack movement to push for – and probably achieve – a radical change in Africa’s largest democracy.

The politicians have noticed. The Nigerian senate has invited the governor of the central bank and the director-general of the securities regulator to testify on the matter, with one senator coming out as “strongly against” the ban.

Other countries thinking of banning bitcoin (BTC, +4.49%) will no doubt be watching how this plays out. They will also be taking note that rules can make it harder to transact in cryptocurrencies, and could certainly dampen investor enthusiasm, but – just as the Dogecoin community could not care less about what the network’s founders think – they can’t make it go away.

And the very act of attempting to repress cryptocurrency’s use could light a fire under a generational understanding of why it’s necessary.

The rear guard

What does this have to do with institutional investment in cryptocurrencies?

One of the main risks to bitcoin is overly repressive regulation. Some believe that, as the network becomes more powerful, governments will see it as a threat and decide to intervene. It has been a suggested that national security issues might come into play as Iran, North Korea and Russia ramp up their bitcoin mining.

So, investors – and probably some western regulators – should be paying attention to the developments in India and Nigeria, to see whether an attempt to ban cryptocurrencies could be successful.

Only, now it’s about much more than pushing consumers to public protest and unregulated peer-to-peer platforms. Now the institutions are involved.

Even just looking at the U.S., this week BNY Mellon, the world’s largest custodian bank, announced that it was planning to roll out a digital custody unit later this year. Goldman Sachs, JPMorgan and Citi are rumoured to also be looking at crypto custody. Payments giants are stepping up: this week Mastercard revealed it is planning to give merchants the option to receive payments in cryptocurrency later this year. Last week we saw Visa unveil cryptocurrency plans. Cryptocurrency buying and selling appear to be growing into an increasingly significant part of PayPal’s activity. This list is just scratching the surface of public announcements; there is plenty of institutional work going on behind closed doors, as well.

Furthermore, cryptocurrencies now play a significant role in regulated markets in North America and elsewhere. From listed assets to indices to data businesses, traditional markets and crypto markets are becoming inextricably intertwined.

And there is considerable retail support. A study released last summer showed that around 15% of Americans own cryptocurrency, most of whom invested for the first time in the first half of 2020. If that rate of growth is even only partially accurate, the percentage is significantly higher today.

Would any government focus on repairing public trust have the stomach to take on a retail army as well as invested institutions?

As Dogecoin has demonstrated, cryptocurrency holders can be vocal and passionate. It’s not just about love for memes, nor is it just about profit. It’s about innovation, choice, freedom of expression and changing what seems to be broken. With social tension on a slow boil that sometimes spills over, the retail market’s enthusiasm for cryptocurrencies and what they represent – supported by growing institutional investment and market infrastructure relevance – should be enough to make any government interested in maintaining its influence wary of measures that could ignite a problem that just might be harder to control.

And as we watch crypto communities flex their collective muscle, as we accept that markets have changed, as we root for the young workers of tomorrow in developing regions, as we applaud the U.S. President’s nominations of individuals knowledgeable about crypto assets to positions of regulatory influence – we are also watching the risk of overly repressive regulation in large, developed economies recede into the distance.

Culled from Coindesk.com