Global pressure for comprehensive cryptocurrency regulation continues to increase. But it’s possible that this is one of the best things to happen to the asset class.
How did the need for regulation arise in the crypto market?
The Financial Stability Board (FSB), a group of central bankers, regulators and financial officials from the 20-nation group, released a statement Monday. The board announced in October that it plans to propose “robust” global cryptocurrency rules. According to the FSB, recent fluctuations in the crypto markets have highlighted the need to regulate what it calls a highly “speculative” industry. The FSB highlighted the following:
The FSB will report to G20 Finance Ministers and Central Bank Governors in October on regulatory and supervisory approaches to stablecoins and other cryptoassets. These combined efforts of the FSB and international standard-setting bodies aim to minimize the risk of fragmentation and regulatory arbitrage.
So far, the FSB has focused solely on monitoring the cryptocurrency and digital asset space. In February, it released a report highlighting the multiple risks posed by the industry, including the potential failure of certain stablecoins and threats to financial stability from the rapid growth of Decentralized Finance (DeFi).
The FSB announcement came shortly after a memo revealing how the U.S. Treasury might work with foreign regulators to regulate crypto in a way that “respects America’s core democratic values.”
According to the U.S. Treasury, the main purpose of international cooperation on crypto will be to combat the use of cryptocurrencies in illicit financing, promote financial inclusion and strengthen “US leadership in the global financial system” while supporting technological progress.
Global regulators push cryptocurrency regulations
The FSB’s latest announcement comes at a time when policymakers in many of the world’s advanced economies are starting to implement their own cryptocurrency rulebooks. Last month, EU lawmakers agreed on an important piece of legislation called the Cryptocurrency Markets Act (MiCA). According to current proposals, crypto companies are required to obtain a license and provide customer assurances before issuing digital tokens/assets to EU consumers.
One lawmaker said the legislation would tame the current “Wild West” cryptocurrency market. Crypto firms will also need to provide strong protection to assets held in client wallets. They will be responsible if they are lost. MiCA is likely to be approved by the European Parliament in 2023. Also, its rules are likely to come into effect gradually by the end of 2024. Meanwhile, as you follow on Kriptokoin.com, two US Senators recently proposed a law to introduce broad crypto regulations in the US, called the “Responsible Financial Innovation Act”.
The regulations will clarify which cryptocurrencies/digital asset products can be classified as commodities. This would put them under the regulatory jurisdiction of the U.S. Commodities and Futures Trading Commission (CFTC). It will also explain what can be classified as securities. This would put them under the U.S. Securities and Exchange Commission Protected Area. The bill will also establish a regulatory framework around stablecoins. Elsewhere, the UK Treasury has outlined its desire to make the UK a “global crypto hub”. The UK will enact comprehensive legislation later this year.
Is the regulation of the cryptocurrency market good or bad?
Some libertarian-leaning cryptocurrency enthusiasts continue to view governments with suspicion. It also clings to the idea that the current crypto revolution does not need government regulation. However, there is growing consensus in major countries that a strong, pro-crypto regulatory regime should be implemented. It’s possible that the pro-crypto regulatory regime in major economies is actually one of the best things to happen to crypto.
Dozens of surveys of investment/wealth managers over the past year have shown a growing institutional interest in allocating a portion of portfolios to digital assets. Analysts speculate that the implementation of comprehensive crypto regulations could open the door to a flood of billions of institutional capital to enter the industry.
Specifically, it can be suspected that the implementation of a broad crypto regulatory framework will pave the way for the approval of spot Bitcoin and other cryptocurrency/digital asset ETFs. The SEC has so far refused to give these ETFs the green light amid concerns over the lack of regulation of cryptocurrency exchanges. Numerous surveys have shown that many investment managers would be significantly more likely to invest in digital assets if it were a regulated spot ETF.
Regulations that will ignite the next cryptocurrency boom!
Meanwhile, analysts argue that uncertainty over the future of crypto regulations is currently stifling innovation in the industry. If we say there will be comprehensive legislation covering digital assets, DeFi and stablecoins in the US, Canada and UK by the end of 2024, crypto firms will be able to plan better for the future. This will improve their ability to raise capital and put them to work. Also, the benefits will increase if the rules can be synchronized fairly well across geographies, which is one of the main stated aims of the FSB.
Given the current relentless trend towards the adoption and regulation of cryptocurrencies and their associated technologies in most major economies, a shift towards regulatory clarity in the coming years seems likely to act as a tailwind to the prices of all major cryptocurrencies, likely to generate a substantial increase.
Bitcoin, of course, is the prime candidate for success. But there is Ethereum, Binance Coin, Solana, Cardano, Polkadot and more. So highly successful projects will likely also benefit. But only if regulators play their cards right. Stablecoins have the potential to transform the global payment infrastructure.
In particular, the US can properly regulate private stablecoins to ensure their stability. Then he can convert them into legal currency. If so, it could solidify the US dollar’s role as the global reserve currency for the remainder of the century.
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