Crypto exchanges are companies that bring together supply and demand in one place. Although these companies are called exchanges, they are not subject to financial supervision. Hence, trading in Bitcoin, Ethereum and Co. is largely unregulated and often feels like the wild west. The question is, do we need a intensive regulation and what potential would there be for cryptocurrencies in this case?
Because of the lack of strong regulation, the crypto exchanges can be described as a part of the so-called shadow banking system. This means that the conditions under which trading takes place are not monitored by an official third party. A third party which answers questions like: who can participate in trading, how are prices determined, how does the settlement take place and what are the requirements for the operator of the exchange? All these regulations are currently optional and they are not supervised.
Therefore, without regulation, the crypto sector can be like it was in the proverbial Wild West. And that’s why crypto products can be created with fraudulent intent without having to be noticed immediately. There are no clear rules that are controlled by independent specialist institutions such as a financial regulator. Hence, it is not surprising that scammers who establish themselves in this sector are often not recognized until it is too late.
Governmental regulation, on the other hand, would mean that investors have more trust in the products and commercial structures offered to them. The crypto industry could then be much more integrated into traditional financial markets than it is today. In fact, cryptocurrencies such as bitcoin are now purely private ventures without a trusted control structure.
Major Disclosure And Control Issues
An often-heard argument is that no external authority is needed to control transactions. The system is able to control and monitor itself with the help of the underlying algorithm, the blockchain.
This relies on decentralized control, hence a key argument in favor of these alternative currencies is often that their control is internal. Unfortunately, this argument does not apply to the actors involved in a transaction – and without actors, a cryptocurrency remains gray theory.
Will The Crypto Scene Become Obsolete?
Voices are increasing that the crypto scene hardly has a future in our financial system – simply because the opportunities for fraud are too great, too easy. And because any authority regulation could not only steal the appeal of decentralization but also remoteness from the government. It could also make transactions even more expensive!
These critical and skeptic voices are guessing that there might be a brighter future rather for digital financial products in general and for digital central bank money in particular, like the digital Euro.
Also, banning cryptocurrencies is not that easy as the system is completely decentralized, there is no easy starting point for government regulation. But the events at the exchange FTX were for sure an eye-opener for many investors, who have said that there is absolute transparency and credibility here.
The crypto industry uses the blockchain as a basis, but behind the scenes it often changes business processes that invite thieves and scammer are difficult to recognize as such.
Nonetheless, the blockchain is an ingenious invention. It is a technical booking system without the need for a control body to check the correctness of the bookings. That’s a great achievement. But what can be done with this service as an economical product is still unclear to this day.
At this moment, whether cryptocurrencies have a long term future or at the beginning of their end, it’s just another theory among others and as usual, the time will show the final result. At least, the pressure to demand regulation increases.
CFTC Commissioner Calls for More Global Crypto Regulation
CFTC Commissioner Caroline Pham is calling on regulators around the world to create a common clear regulatory framework for dealing with cryptocurrencies in the new year 2023.
In an interview with Bloomberg, Pham revealed that the American Trade Commission (CFTC) is in exchange with other global regulatory authorities. Especially because of the current market situation, the discussions about common crypto regulatory standards have been intensified again.
As Pham states, she has been involved in more than 75 meetings with various parties on the topic of crypto regulation. The CFTC commissioner notes that efforts outside the US “are already very far advanced” in terms of the search for comprehensive standards.
When asked about the current crisis situation in the crypto industry, which has recently affected the influential companies Gemini and Genesis, Pham says that the authorities need to think about “how they can use their existing powers to ensure the necessary clarity to care”.
For example, regulators would have to treat crypto financial instruments to the same standards as traditional financial instruments. It must also be examined which existing legal framework outside of crypto regulation can be transferred to blockchain and crypto.
Finally, Pham warns that it is always necessary to look ahead, so that not only “the status quo is maintained”.
Summary
To sum it up: Voices for more regulation and especially, for a standardised global authority regulation are getting louder. This could destroy the appeal of the idea of a cryptocurrency concept: a currency without an intermediary, without any banks. But at this moment, there are too many scammers in the crypto world and this threatens the independence and the trustfulness of the whole cryptocurrency concept.
In my opinion, in the crypto industry, there must be the change in the attitude. If not, then sooner or later we could face pathetic remains of the originally ingenious concept. Hence, wait and see…
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