The Challenge of Cryptocurrency Regulation
Crypto regulation will be tricky. FTX was based in the Bahamas, so stricter US regulatory standards, if they had been in place, probably wouldn’t have made a difference. Since the days of Swiss bank accounts, investors have sought refuge in remote and poorly monitored international environments.
But operating inside the regulatory loopholes of other countries will work against crypto in the long run. Will the average novice crypto user, the kind who needs help with their traditional financial tools, entrust their transactions and retirement savings to a Bahamas-based financial house of cards? Not likely.
If crypto is to be an accepted retirement savings tool, for example, it must be considered relatively safe, over a long period of time, by the average person, not just the crypto enthusiast. When a crypto organization can demonstrate that it is subject to and complies with US government laws and rules, it not only provides assurance to investors, but it can also be a selling point.
This is why I find it so interesting that Abra, a well-known crypto exchange and lending platform, plans to launch the first regulated crypto bank in the United States in early 2023.
The crypto industry in the United States is already more regulated than in most other countries. The Security and Exchange Commission has bitten into this apple based on how cryptography can be considered security in some cases. The Commodities Futures Trading Commission is also very interested in this space, given the commission’s mandate to regulate futures and commodity trading.
Policymaking is messy, to begin with, especially where generalist policymakers try to keep up with technical innovation. Regulators know more about emerging crypto applications than all but a handful of congressmen and committee staff. That’s why, in the Washington world, things work best when policymakers give broad policy guidance and limited authority to specialized regulators who flesh out the details, subject to oversight.
We’re seeing progress in making consumers familiar and comfortable with cryptocurrency and exchanges, with campaigns and products that even a baby boomer can understand. But we also need to be even more active on this front-end.
Our education system and K-12 curriculum fall short in a number of areas – from history to citizenship to the economy. Today’s CM2 student is tomorrow’s consumer and investor. They need to understand their currency and their investment/savings options. This includes the fundamentals of cryptocurrency – not just how the app works.
And crypto companies have to come to terms with the fact that their industry is only as strong and legitimate as their weakest link. US regulators, whether the SEC or other appropriate agencies, must act quickly to ensure that US-based crypto products and exchanges are considered the gold standard (no irony!) in the world and, therefore, the most attractive for users and investors. .
Major crypto players are now far too battered to truly withstand the pace of regulation as a new era of crypto is about to begin. And if regulators aren’t able to rein in the riskiest players in this sector, the market will – as evidenced in recent weeks.
That said, we run the risk of over-regulating and potentially killing many of the emerging technologies in this space that are now seeping at the top.