Regulators turn up the volume on cryptocurrencies

Regulators worldwide have increased digital asset-related messaging by 7,436% since 2018, according to a new report from regulatory technology firm CUBE.

2022 is the largest year so far, with over 4,666 regulatory issues related to crypto in the first four months of the year. In 2021, there were a total of 9,872 issues.

“As society and traditional financial services move toward welcoming cryptocurrencies into the mainstream, regulators are moving quickly to create new regulations or expand existing ones to protect consumers and the wider economy,” CUBE analysts wrote in the report. “It is fast becoming a financial stability risk.”

Countries in North America account for 51% of all crypto-related regulatory issues, according to CUBE. Europe accounts for 32% of total issues.

Discussions about the crypto-industry’s sustainability and environmental impact have so far accounted for less than 0.1% of all crypto-related regulatory issues, CUBE researchers found.

“This poses potential conflicts for global regulators who have universally claimed to care about environmental, social and governance factors for finance – by introducing climate-related disclosure rules in many jurisdictions,” analysts wrote in the report. “At the same time, regulators are advocating for a greener financial system, while actively working to bring cryptocurrency under their wings, with negative environmental effects on tow.”

Concerns about crypto’s energy use focus primarily on mining-for-work (PoW) mining practices, which both bitcoin and ether use, even though ether is trying to move to a proof-of-stake model. PoW is notoriously energy-intensive since it requires a number of participants in the blockchain network to simultaneously compete against each other to solve a cryptographic puzzle, CUBE researchers noted.

“In the United States, we do not see the same extensive discussions about sustainability yet, but the effects of, for example, crypto- and fossil fuel mines are beginning to come to the fore at the state level at least,” said Ben Richmond, founder and CEO of CUBE. “As with most climate risk regulatory measures, it appears that any sustainability regulation will start as disclosure rules, which are not overly burdensome.”

Most regulatory measures around the world so far have focused on broad investor protection, analysts noted.

“The data shows that regulators get to the crypto through a very wide lens,” Richmond said. “The most referenced terms are very high-level topics such as ‘virtual assets’, ‘cryptocurrency’ and ‘digital assets’.”
Regulators are starting out broadly and are likely to limit themselves to details in the future, Richmond added. Few regulatory issues are related to specific tokens, but regulators have begun to look more closely at stack coins in recent years, he said.

The Financial Services Agency of Japan (FSA) has been active in publishing crypto-regulatory measures, with a specific focus on stack coins. In March 2021, the FSA launched regulations to legitimize and monitor stack coins, which were later adopted in June 2022.

The UK has also been particularly interested in stack coins. In January 2021, the United Kingdom’s HM Treasury published plans to administer stablecoins in a consultation document, which sets out a potential insolvency regime for stablecoins.

Regulators across the United States have sought to adopt measures that will monitor stablecoin reserves more closely, a concern that has grown in recent months in the wake of the algorithmic stablecoin TerraUSD’s collapse.

“Recent events in the decentralized financial area have demonstrated the volatile nature of investing and building in this nascent industry,” said Alex Royle, head of compliance and regulatory affairs in Europe, the Middle East and Africa at Galaxy Digital. “Legislators and regulators are now trying to figure out what rules can be put in place to better protect investors and the wider crypto ecosystem.”

Get today’s best cryptic news and insights delivered to your inbox every night. Subscribe to Blockworks’ free newsletter now.