Crypto will benefit from global cooperation, not monolithic global rules
There has been a maelstrom of conversation surrounding the blockchain and cryptoasset landscape over the past few months, and for good reason. After an astonishing run in which prices hit all-time highs for almost every crypto asset on the market, a new crypto winter has set in. Bankruptcies and scandals make headlines with soap opera-like regularity, many investors have either lost huge sums, or are hunkering down to wait out this bear market, and decision makers are under constant pressure to take action, and to do so immediately.
Spurred to action by investors, politicians and the media frenzy surrounding this crypto collapse, there have been recurring calls for global standards around how crypto assets should be treated. However, after the recent (but possibly temporary) failure of a bill that contained a similar global corporate tax policy, it seems worth taking a second look at what a global policy for cryptoassets might actually mean. On the surface of the idea, a globally consistent policy built on the consensus and agreement of all nations involved sounds like an almost utopian solution to governing a sector that has (so far) proved difficult to regulate at the nation-state level.
However, a closer look at such an idea reveals that there are several important considerations that should be considered before moving forward.
Own interests will prevail. A regulatory paradox that may be overlooked in mass media conversations, but is obvious once recognized, is the fact that the larger and more entrenched an organization is (the incumbents), the more positively they tend to view regulation. Larger and more established organizations – in any industry – tend to have the personnel, financial resources and legal expertise to successfully navigate almost any regulatory change or obligation imposed on them. However, smaller firms, startups and entrepreneurs thinking about entering an industry are not nearly as well equipped to deal with such changes.
Any global regulation to be developed will always involve large amounts of cooperation from the largest and most influential organizations in financial services. These same firms are also the ones most likely to try to discourage start-up and/or competition, and will – in all likelihood – lobby from the regulations most favorable to them.
This is not evil, nor unethical, and is something any management team with a fiduciary duty will try to do. That said, this also discourages developing a global, top-down, incumbent-influenced framework.
Inflexibility. Another negative implication of a global regulatory framework is that such a framework would be inherently inflexible, and this is due to two different but related reasons. First, any type of updates or modifications necessary to accommodate new market changes will – almost guaranteed – have to be approved by a majority or at least several initial signatories. Anyone with even a cursory understanding of decision-making, or even just an awareness of policy-making at large, should realize that achieving such a consensus would be a difficult, if not impossible, task.
This craziness will eventually, as it always does, lead to a series of solutions, compromises and half-baked solutions that do little to benefit the ecosystem and are instead implemented on an ad hoc basis to appease calls to action. With such a regulatory framework, exceptions, inconsistent enforcement and blatant disregard of the rules will inevitably follow to varying degrees.
Top-down solutions appear to be easier initially, but over time create more problems due to the huge amount of buy-in required for any future changes.
Disempowerment for the electorate. The most disturbing thing about any global regulation or regulation is the simple fact that it places the voters of different nations – who have elected officials to represent their interests – under the control of individuals and committees over which they have no influence. Disempowering entire nations in such a way is a dangerous path to go down, and will (rightly) lead to dissatisfaction with what was produced, attempts to undermine enforcement, and may even empower specific politicians and political parties who campaign on an anti-global platform.
In addition, this will also cause the regulators in the nations that will fall under this regulatory structure to lose their power. In such circumstances, it would be reasonable to ask – what is the point of national crypto-regulators in the face of such a global framework? These exact questions have been asked throughout the existence of the European Central Bank (ECB), and the role left, for example, to the central banks of its member nations – and there is almost no reason to expect it to be any different under a global crypto regulatory regime.
Global coordination and rulemaking is a facet of any global industry or economic sector, and the cryptoasset industry is no exception to this rule. Amidst the volatility and dramatic changes in sentiment, calls for globally consistent and comparable rules have only grown in volume. Rules, and more importantly consistent rules, are necessary for any sector to grow, mature and become more widespread. Crypto regulations should be the result of nation-state collaboration that brings together regulators, investors and policy makers, and not a top-down framework imposed without accountability or transparency. Everything else is a recipe for inflexible and ineffective rules that will be a disservice to all market players.