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Cryptocurrency Finance Policy

Fintech in 2022: CBDCs, Superapps, and Regulation

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter.

Fintech will have a tough time topping 2021 (which might be a good thing—the world doesn’t need a repeat of the Robinhood-enabled Gamestop Götterdämerung, or Better.com’s CEO accusing hundreds of employees he Zoom-fired of “stealing” from the company). Private investment in fintech is likely to retreat slightly, at least in the US and China, although investment in crypto-related startups will almost certainly increase. The bloom is off the SPAC rose a little, meaning some large fintech companies will stay away from the public markets in 2022.

On a more detailed level, here are some fintech predictions for 2022:

Regulation is coming, on a variety of fronts.

The biggest development is India’s still-in-proposal-phase threat to ban cryptocurrency. As we noted in December, Modi’s government is displaying a lack of resolve: dates for submitting the bill have come and gone, and various leaks about draft revisions keep cropping up. India’s main securities regulator had approved in November an ETF offering exposure to global blockchain technologies, but then hit the brake, lest the fund contradict whatever rules are supposedly coming. The vacillation is not that hard to understand; there are an estimated 15 million holders of cryptocurrency in India, and the government knows from previous attempted bans that compliance is hard to achieve. FIN expects that some kind of bill will pass this year, but that it will either be short of a full ban or be rescinded once India gets its own central bank digital currency (CBDC); a pilot program may launch as early as this year (more about this below).

In the UK, greater scrutiny of Buy Now, Pay Later (BNPL) schemes seems nearly certain this year. In October, the Treasury began a consultation period on proposed BNPL regulations, particularly around educating consumers and preventing excessive debt; that period ends on January 6. Similar measures may be adapted in Australia and the European Union, although possibly not in 2022.

US regulators should begin tackling several issues this year, notably stablecoin. Even if Fed chair Jerome Powell and Treasury Secretary Janet Yellen can’t yet agree on the form that stablecoin regulation should take, the US government broadly agrees that the meteoric rise in the use of dollar-denominated stablecoin presents a genuine risk to the stability of the financial system. Look for legislation on this issue to be introduced in 2022; whether a bill can actually pass and have an impact is a separate question.

Aside from occasional enforcement actions, US regulation of cryptocurrency has been at a standstill for several years, in part because Congress has failed to take up the issue in any meaningful way. Senator Cynthia Lummis (R-WY) wants to change that, and has pledged a comprehensive bill that would spell out clearly the qualifications for different asset classes and create a crypto-specific regulatory agency. It’s far from guaranteed to become law, but it should generate some productive debate.

The West’s superapp quest will continue, perhaps pointlessly.

There are several drivers of fintech consolidation, but one of the strongest is the race to create a superapp—that is, the overarching, one-stop app in which consumers not only make payments but also buy stock and crypto, book car rides, order food delivered, etc. While WeChat and Weibo enjoy this status in China, during 2021 FIN (see item #2) has become increasingly pessimistic that a genuinely transformative Western superapp can be built simply by bolting handy services onto an already successful product. That won’t stop many from trying, although Facebook and Google seem sufficiently chastened by recent misfires to sit out for a little while (although if Amazon were to make a major move in 2022, particularly outside the US, it would grab our attention). In the meantime, look for fintech giants like PayPal and Square (now Block) to acquire specialty companies in an attempt to boost their superapp standing.

DeFi will eat further into mainstream fintech.

For all of the hype in the second half of 2021, Decentralized Autonomous Organizations (DAOs) are truly in their infancy. Most American states, for example, don’t even recognize DAOs as companies (by contrast, Singapore and Switzerland actively court DAOs and other blockchain companies). As DAO interfaces become more user-friendly, a small but growing group of consumers will adopt DAOs, which in turn will put pressure on traditional financial services and neobanks to compete. will move more toward the mainstream in 2022.

CBDCs are coming soon…or kinda here?

As FIN predicted a year ago (see #5), China’s digital yuan has continued to expand, if somewhat more quietly than anticipated. If you believe Chinese state sources,

more than 140 million personal digital wallets for e-CNY have been created and another 10 million company digital wallets were opened as of Oct 22. More than 150 million transactions have been made via digital wallets, with the total transaction value approaching 62 billion yuan ($9.73 billion).

Even if those statistics are twice as high as reality, the number of people with digital yuan accounts is already larger than the adult population of the vast majority of countries on Earth. The digital yuan will clearly grow in 2022.

India, as noted above, may not be too far behind; a government report issued this week called CBDC “a safe, robust and convenient alternative to physical cash.”

This week, the Mexican government tweeted out its plans for a pilot program in 2024:

The international CBDC movement—for what it’s worth the US is conspicuously years behind—raises what for FIN is perhaps the most fascinating, as-yet-unanswerable question for 2022: When the world’s largest economies have fully operational, widely distributed CBDCs, what will happen to the “private” cryptocurrency market of Bitcoin etc? Will there, for example, still be a need for dollar-denominated stablecoin like USDC? Will there be a bifurcated market in which authorized CBDCs are used for payments, while Bitcoin and other coins are still attractive as speculative assets, or illegal activity? 2022 might be the year that we figure this out. Tell the FIN community what you think in a comment.

This piece originally appeared in FIN, James Ledbetter’s fintech newsletter. Ledbetter is Chief Content Officer of Clarim Media, which owns Techonomy.

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