Crypto regulation needs clarity, Europe can deliver

After last year’s collapse of cryptocurrency exchange FTX, which had an indelible contagion effect, and more recently, the demise of several banks with crypto exposure, regulators around the world are increasing scrutiny of the inner workings of the digital currency market.

In the US, some market observers argue that the Securities and Exchange Commission (SEC) is missing the mark by refusing to approve a spot bitcoin exchange-traded fund. Others argue that the commission may be too broad in its efforts to regulate crypto, while others believe that more guidelines could actually benefit the market by reducing the feeling of the “Wild West”

“But the US regulators are making their view very clear. The SEC says every crypto except Bitcoin is a security.” noted Sheena Shah, head of crypto research at Morgan Stanley. “The definition will determine which products can be offered, which companies can offer them, which regulator will be in charge and perhaps even how transactions are taxed. It is agreed that Bitcoin should be classified as a commodity, in part because of its decentralized nature, and no regulator classifies Bitcoin as a currency, as this would admit that it is a direct competitor to the US dollar.

Ariana Salvatore, from the bank’s domestic policy team, highlights two possible paths for crypto regulation in the US. The first would be the direct involvement of Congress regulating the space, which would amount to restrictions and a kind of “crypto-degradation”. The other would be Congress delegating authority over the crypto investment universe to another agency.

“Keep in mind that the Republican Party controls the House of Representatives, so there are some structural constraints here that may make any regulatory effort a little easier than what you might expect in a unitary government scenario or single-party control,” Salvatore noted.

Outside of the US, some cryptoregulatory frameworks are emerging, including in Europe. The European Union (EU) Parliament approved rules to track crypto transfers in an effort to stop money laundering activities.

“The law will also cover transactions over €1,000 from so-called self-hosted wallets (a crypto-asset wallet address of a private user) when they interact with hosted wallets managed by crypto-asset service providers. The rules do not apply to person-to-person transfers made without a provider or among providers who act on their own behalf.” according to the Storting.

The policy will also not affect cryptocurrencies currently covered by established financial services legislation, indicating that more regulation, at least at the regional level, may await the digital currency space.

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The opinions and forecasts expressed herein are solely those of Tom Lydon and may not materialize. Information on this website should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation for any product.