The future of cryptocurrencies in the superyacht industry
With the impact of potential regulation a hot topic within the world of cryptocurrency, the research team from HAYVN shares its analysis…
The efficiencies offered by blockchain-settled payments have started flowing into the world of luxury transactions. Traditional payment systems typically rely on multiple intermediaries, each taking fees for the processing of the transaction. Manual authentication checks and business hours then restrict the speed at which the transaction can be settled, with counterparty risk also being introduced. Processing transactions on the blockchain can offer reduced settlement times, lower fees and simpler cross-border payments, which makes for a convenient payment alternative that is growing in popularity.
This appeal has started spreading to the transactions of superyachts, where the waiting period and settlement time are typically high. Medium and high-net-worth individuals find that using cryptocurrency can simplify a transaction significantly. Often, there is a broker, escrow agent, and seller, all in different jurisdictions, complicating the settlement of the transaction. Administrative delays with banking institutions at each party are common, which are worsened by the restriction of banking hours.
The blockchain allows for easier migration of funds across borders due to its 100% uptime and self-custodial nature. Furthermore, with the growing adoption and popularity of digital assets, the number of crypto-native customers is increasing. Such investors may not wish to divest from an industry they believe in, nor incur the costs of doing so. Users also often move into cryptocurrencies as a way of avoiding economic or political uncertainty in their local jurisdictions. A 2022 study by Chain Analysis has shown that the rapid devaluation of domestic currencies is a strong driver for crypto adoption.
One concern around the cryptocurrency industry, in general, is that of regulation. There has been a widespread belief that regulatory authorities will imminently blanket the industry in overly-restrictive regulation, though the evidence of this is minimal. Lawmakers have taken a distant approach to regulate cryptocurrency since its inception, in part due to the industry’s volatility, and in part due to the rapid pace of technological development that leaves lawmakers perpetually one step behind. Although US lawmakers have recently moved against crypto firms that have been deemed to be a systemic risk, there is no evidence to suggest the entire industry is threatened.
Regulatory clarity, however, is very likely a positive. Institutional involvement requires certainty, not ambiguity, and institutional involvement is what permanently embeds the technology into our economies. The post-FTX environment is one of regulatory enforcement in the US, with the Securities and Exchange Commission (SEC) ramping up its efforts. Recently, they served Paxos a Wells notice for the issuing of an unregistered security, giving them 30 days to counter with a reason they should not pursue legal action.
This extends concerns to other stablecoins, which would be severely impacted if their classification is determined to be a security. The Howey Test - a legal test used in the United States to determine whether a transaction qualifies as an investment contract and, thus, is considered a security under federal law - dictates this and is a contentious issue as one of the requirements is that an asset must have the feature of expected future return.
While we expect this clampdown may continue, we also expect that regulatory clarity, in whatever form, will provide the guidelines needed for the industry to evolve. In an unlikely world without stablecoins, transactions could be settled in other cryptocurrencies, or perhaps central bank digital currencies (CBDCs).
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