The Right Side of Crypto Regulation: Institutions Need to Avoid Thucydides’ Trap

cryptonews.com:

Anton Chashchin is a Managing Partner at the digital assets platform Bitfrost.io. __________

The days when cryptocurrencies were reserved for the underground are fast becoming history. But the power dynamics in finance are all too familiar.

As cryptocurrencies edge into the mainstream – with global adoption up 881% in June 2021 compared with the year prior – opinions in the institutional world remain split. While some financial leaders – like MicroStrategy – are adding to their crypto holdings, the general support for adoption among the rank and file continues to be overridden by scepticism. The recent crypto crash has only exacerbated this, with many institutions backing out of the market and furthering the cynicism.

Older institutions, in particular, feel compelled to defend the foundations of traditional finances against the more radical characteristics of the crypto movement: decentralization, anonymity, and, in their eyes, instability.

Facing a challenge to the status quo, institutions now find themselves at a historically precedented fork in the road: Thucydides’ trap. 

The Thucydides Trap is a political theory describing a scenario in which a rising power challenges the dominance of existing power. The dominant power, when threatened, becomes paranoid and is likely to respond with war.

Although the original applied to Sparta and Athens of ancient Greece, this applies to the relationship between the crypto industry and financial institutions.

That sentiment is encapsulated by the comments of the well-known opponent of cryptocurrencies and the embodiment of traditional finance, Warren Buffett, who said in an interview with CNBC, “Cryptocurrencies basically have no value, and they don’t produce anything. I don’t have any