Forex in this article
• The EU launches MiCA
• Crypto regulation also possible without stopping innovation
• US draft law could codify crypto definitions
As cryptocurrencies grow in popularity, so does the demand for regulation of digital assets. Campaigners often call for uniform measures to protect investors, but critics of the rules fear strict bans and restrictions on trading Bitcoin, Ethereum & Co.
Agreement on the EU’s crypto regulation MiCA
These concerns were also debated 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 cryptocurrencies, their issuers and crypto service providers. “Recent developments in this rapidly changing sector have confirmed the urgent need for EU-wide regulation,” French Minister of Economy, Finance and Industrial and Digital Sovereignty Bruno Le Maire said in a European Council statement. “MiCA will better protect Europeans who have invested in these assets, prevent misuse of crypto-assets and at the same time be 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. , puts put an end to it and consolidate the EU’s role as a norm-setter on digital issues.” Stablecoin investors in particular need to be better protected by EU regulation regarding the Terra/LUNA debacle. Owners of digital currencies pegged to other assets should be able to exchange their holdings for fiat currencies at any time for free. Contrary to earlier fears, the directive does not include a ban on the computationally intensive “Proof of Work” mining process, which is also used for Bitcoin. However, crypto exchanges will have to report transactions from non-hosted wallets whose value exceeds 1,000 euros in the future, which means they will lose some anonymity, according to the online portal “t3n”.
Before the legislative framework is actually implemented, the Council and the European Parliament must approve the agreement, says 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 software company Hummingbird Regtech, expects that regulation of the crypto market, with volatile price movements and scandals like the now insolvent crypto lender Celsius, will increase in the future and may also become more aggressive. He shared this assessment in a text article on the business media “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 expert, whose company provides tools to fight to deal with financial crime. “My experience as a Treasury Department regulator, 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 are 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 respect to existing, traditional assets. In June 2022, for example, Gary Gensler, head of the US Securities and Exchange Commission, was open to treating Bitcoin as a commodity. However, other cryptocurrencies should be considered securities, Gensler told CNBC. However, should the SEC chief’s assessment stand, the agency would no longer be responsible for bitcoin trading, but would hand over responsibility to the Commodity Futures Trading Commission (CFTC), which oversees commodity 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, rather than putting Internet currencies in a drawer where they don’t belong.
American 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 impulses. “The United States is a global leader in finance, and to ensure that the next generation of Americans has more options, it is critical to bring digital assets into law and leverage the efficiency and transparency of this asset class while reducing risk management, ” Lummis explained in a June 2022 announcement. “Lummis and Gillibrand’s framework will bring clarity to both the industry and regulators, while providing the necessary flexibility to accommodate the ongoing evolution of the digital asset market,” Gillibrand said. If the law is implemented, the definitions of the crypto market set by the two senators will 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,” Van Buskirk said.
Strict measures with flexible adaptation
In addition, there is nothing to say against strict regulation to protect investors, the crypto expert continued. However, in order not to prevent innovation, the measures must also be flexible enough to respond to the dynamic crypto market. “A good indicator for regulators is to ask: is this regulation protecting the end user? Or am I protecting existing businesses at the expense of new product innovations that can improve consumer outcomes or increase competition?” Van Buskirk said. In order to make such decisions, the authorities must not only know the legal framework, but also be able to assess the potential of future developments. This makes it possible that even if strict laws are passed covering numerous applications, further development of the sector is not only blocked but actively encouraged.
Timely response to market events
It is also crucial for the success of the industry that regulatory measures are implemented quickly, otherwise the further development of the sector will quickly come to a standstill. According to the Hummingbird Regtech boss, the June 2022 crypto crash showed how important it is for authorities to act quickly. Legislators are required to respond quickly to such market events and implement new measures to protect consumers from total loss. The goal, Van Buskirk calls for, is “to develop an enforcement framework that will allow regulators to move as quickly as the crypto market itself.” “Crypto regulation is necessary – and the time to write and implement it is clearly here,” Van Buskirk continued. “Policymakers would do well to remember that ignoring what makes cryptocurrencies unique and valuable is as foolish as not regulating them at all.”
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