• EU launches MiCA
• Crypto regulation also possible without halting innovation
• US draft law could codify crypto definitions
As cryptocurrencies grow in popularity, so does the demand for regulation of digital assets. Initiators often call for uniform measures to protect investors, but critics of the regulations fear strict bans and restrictions on trading in Bitcoin, Ethereum & Co.
Advertising
Trade Bitcoin and other cryptos via CFD (also with leverage)
At Plus500 you can benefit from rising and falling crypto prices – also with leverage. Test the free demo account now!
Plus500: Please note the Hints5 to this advertisement.
Agreement on EU crypto regulation MiCA
These concerns were also up for debate among crypto fans before the agreement on the European regulation on crypto assets MiCA. At the end of June 2022, the EU Council Presidency and the European Parliament then agreed on a framework for crypto currencies, their issuers and providers of crypto services. “Recent developments in this rapidly changing sector have confirmed that there is an urgent need for EU-wide regulation,” French Minister of Economy, Finance and Industrial and Digital Sovereignty Bruno Le Maire said in a statement from the European Council. “The MiCA will better protect Europeans who have invested in these assets, prevent misuse of crypto assets while being innovation-friendly so that the EU does not lose its attractiveness in this regard. The landmark regulation will resemble the wild west that reigns in crypto assets , put an end to it and consolidate the EU’s role as norm-setter on digital issues.” Stablecoin investors in particular are to be better protected by EU regulation with regard to the Terra/LUNA debacle. Owners of digital currencies linked to other assets should be able to exchange their holdings for fiat currencies at any time free of charge. Contrary to previous fears, the directive does not include a ban on the computationally intensive mining process “Proof of Work”, which is also used for Bitcoin. However, crypto exchanges will have to report transactions from unhosted wallets whose value exceeds 1,000 euros in the future, which means that they will lose a lot of anonymity, according to the online portal “t3n”.
Before the regulatory framework is actually implemented, the Council and the European Parliament must approve the agreement, according to the government institution, and only then will the formal acceptance procedure be initiated.
Financial innovation must not come at the expense of regulation
Matt Van Buskirk, CEO of the software company Hummingbird Regtech, expects that the regulation of the crypto market, with volatile price movements and scandals such as the now insolvent crypto lender Celsius, will increase in the future and could also become more aggressive. He shared this assessment in a text article on the business medium “Fortune”. “Cryptocurrencies are a unique asset class built on unique technology. For cryptocurrency regulation to make a real difference, it must protect investors without stifling financial innovation,” warned the crypto connoisseur, whose company provides tools to combat to deal with financial crimes. “My experience as a regulator for the Treasury, architect of one of the first crypto compliance functions, and co-founder of a regtech company has led me to the conclusion that a strong and comprehensive regulatory framework for cryptocurrencies can only be achieved by prioritizing a few key goals can.”
Appropriate definitions of cryptocurrencies required
As a first step, Van Buskirk is asking regulators to clearly define the crypto market. So far, the digital assets have been classified with regard to existing, traditional assets. In June 2022, for example, Gary Gensler, head of the US Securities and Exchange Commission, was open to treating Bitcoin like a commodity. However, other cryptocurrencies should be considered securities, Gensler told CNBC. However, should the SEC chief’s assessment apply, the agency would no longer be responsible for bitcoin trading, but would hand over responsibility to the Commodity Futures Trading Commission (CFTC), which oversees commodities trading.
Van Buskirk criticizes such approaches for defining cryptocurrencies based on similarities with other assets, but not on the basis of differences from them. “Cryptocurrency regulators need to create new definitions – ones that relate directly to the technology and processes unique to cryptocurrencies,” the expert urged. This could create a legal framework that covers the properties of these assets, instead of putting internet currencies in a drawer where they don’t belong.
US draft law could bring clarity
The Lummis-Gillibrand bill initiated by US Senator Cynthia Lummis and supported by her New York colleague Kirsten Gillibrand could provide impetus. “The United States is a global leader in finance, and to ensure the next generation of Americans have more opportunity, it is critical to bring digital assets into the law and leverage the efficiencies and transparency of this asset class while reducing risk cope,” Lummis explained in a June 2022 announcement. “Lummis and Gillibrand’s framework will bring clarity to both industry and regulators, while providing the flexibility needed to accommodate the ongoing evolution of the digital asset market,” agreed Gillibrand. Should the law be implemented, the definitions of the crypto market set by the two senators would be firmly enshrined in law. “However, it remains to be seen whether the wording and information is sufficient for the authorities tasked with creating and enforcing regulations,” said Van Buskirk.
Strict measures with flexible adjustment
In addition, there is nothing to be said against strict regulation to protect investors, the crypto expert continued. In order not to prevent innovation, however, the measures must also be flexible enough to react to the dynamic crypto market. “A good indicator for regulators is to ask: is this regulation protecting the end consumer? Or am I protecting existing companies at the expense of new product innovations that could improve consumer outcomes or increase competition?” said Van Buskirk. In order to be able to make such decisions, authorities must not only know the legal framework, but also be able to assess the potential of future developments. This makes it possible that, although strict laws are passed that cover numerous applications, further development of the sector is not only not blocked, but actively encouraged.
Timely reaction to market events
It is also essential for the success of the industry that regulatory measures are implemented promptly, otherwise further development of the sector will quickly stall. According to the Hummingbird Regtech boss, the crypto crash in June 2022 showed how important it is for the authorities to act quickly. Legislators are obliged to react quickly to such market events and implement new measures to protect consumers from total losses. The goal Van Buskirk is calling for is “to develop an enforcement framework that will allow regulators to move as fast as the crypto market itself.” “Crypto regulation is necessary – and the time to write and implement it is clearly here,” continued Van Buskirk. “Policymakers would do well to remember that ignoring what makes cryptocurrencies unique and valuable is just as stupid as not regulating them at all.”
Editorial office finanzen.net
Image sources: r.classen / Shutterstock.com, Wit Olszewski / Shutterstock.com