The crypto regulations are moving fast – proposals for productive political debates ahead

In recent years, there has been a lot of regulatory activity, rule writing and proposed frameworks that try to keep up with the rapidly growing and expanding sector for cryptocurrencies. Most recently, there have been several proposed legislation focused on stack coins, including but not limited to the STABLE Act, TRUST Act, statements from NYDFS and proposed regulations from several high-profile and pro-crypto senators.

On top of that, there have been a number of statements from agencies such as the Office of the Comptroller of the Currency (OCC) and the Internal Revenue Service (IRS), which have further confused the regulatory outlook. Given the volatility of crypto recently, and especially the economic pain caused by the recent price declines, it would be a simple matter to conclude that the focus should be on investor protection versus promoting innovation.

Simple but an incomplete perspective.

Despite the ideal and potential of blockchain and cryptocurrencies to transform all aspects of economic life, reality is a little more nuanced. Adoption and investment, both during beef markets and the current crypto winter, of blockchain applications from institutional investors continues to increase. At the same time, the strong interest and appetite for cryptocurrencies and services is demonstrated through the ongoing efforts to get a bitcoin exchange-traded fund (ETF) approved for trading by the Securities and Exchange Commission. In other words, a lot is happening in the broader cryptocurrency sector, and regulators who want to add some value to these talks are facing a difficult task. Difficult, but not impossible.

Let’s take a look at a handful of sites that seem to deliver the ideal combination of 1) increased clarity for investors and crypto users, and 2) help promote an innovative and open ecosystem.

Which regulator is responsible. One of the biggest, and most controversial, aspects of the entire regulatory conversation is which agency or body should have the task of regulating the room. The SEC may beat some market participants, and the current chairman of the board Gary Gensler, as the obvious choice for this role, but the lack of guidance and rule-making from the commission seems to work against this narrative. An alternative that has received significant support is that the crypto marketplace should primarily be regulated by the Commodities and Futures Trading Commission (CFTC).

It is obvious that there are market participants who have an earned position in these positions, but what should be the main point of the debate is as follows. The regulatory agency that oversees crypto (and blockchain applications) should be the agency that has the staff, expertise, and willingness to do so. In an ideal marketplace, this will take the form of a specialized regulator that can allocate all the resources to understand and regulate crypto. Given today’s marketplace, however, this deadlock between support for SEC oversight versus CFTC oversight is a major obstacle to both broader adoption and better rule-making.

Specifying where stock exchanges, investors and users should look for guidance and enforcement is a major step that must be taken.

Stable coins. Stablecoins have become the focus of several proposed regulations in recent years, and it is easy to see why. Developed to combine the functionality of cryptocurrencies with the price stability of fiat currencies, stack coins have rapidly grown into a subgroup of the cryptocurrency market worth over $ 100 billion. The use of stack coins for payment purposes is obvious, but one that should not be overlooked. In order to get mainstream entrepreneurs, institutions and individuals to use crypto as a medium of exchange versus just as an asset class, there must be confidence that these instruments will have value. That said, and as widespread as stablecoin payments can become, the importance of stablecoins cannot be attributed to a specific area.

For projects seeking to develop innovative ways to integrate blockchain into the regular financial market conversation – decentralized finance (DeFi), non-fungible tokens (NFT) and decentralized autonomous organizations (DAOs) – must have used an incentive tool that has a stable value. Stablecoins, in other words, are the well-known glue that holds together many of the most exciting blockchain applications that are now entering the market.

Regulators will benefit from having this in mind when developing regulations regarding the type of institutions that can issue stack coins, how the processing of these stack coins is handled.

Insurance and protection. Something that has been highlighted during the recent decline in prices, massive investor losses and declining confidence in the space in general, has been the need for better investor protection, insurance or other such products that are usually available to investors in other asset classes. With the allegations of fraud and other unethical trading on the market directed at previously high-profile and popular exchanges, the importance of clear, consistent and understandable legislation is clear.

Investors, both private and institutional, understand that there is a risk to be taken when allocating capital to certain assets, but for cryptocurrencies to be considered investable together with other more traditional assets, protective railings must be established. In order to achieve mainstream understanding and adoption, emphasis should be placed on safeguarding both investors ‘rights and investors’ ability to recover from losses, especially losses due to unethical activities.

Cryptoactive assets are developing rapidly, and even during the current crypto winter, there continues to be an increasing appetite among individuals and institutions to gain exposure to this asset class. As the calendar rolls forward, and as regulations continue to be debated, there is no shortage of issues to address. Instead of focusing on niche areas, bad players (which are evident in all industries), regulators should instead focus on developing an open, innovative and global ecosystem that will encourage further development and proliferation of the crypto-asset class. Blockchain-based applications, including cryptocurrencies, have enormous potential, and well-founded regulation can help in the further development of space. Politicians should take note of this, work with leaders in the private sector and focus on developing well-rounded and sensible rules to help the sector thrive in the future.