Can cryptocurrencies be regulated? Crypto assets have been around for over a decade, but efforts to control them only now risen to the top of the controlling agenda. This is partly because, in recent years, crypto assets have shifted from being niche goods in search of persistence to having a more traditional presence as speculative investments, protection against weak currencies and potential payment instruments.
The spectacular, albeit volatile, growth in the market capitalization of crypto assets and their entry into the regulated financial system intensified regulatory efforts. This story repeats with the expansion of many other cryptocurrency products and offerings. And evolving innovations that have made cryptocurrency issuance and transactions easier. The failures of cryptocurrency issuers, exchanges, and hedge funds—as well as a recent decline in cryptocurrency valuations—have added impetus to the regulatory initiative.
Applying current regulatory frameworks to crypto assets, or creating new ones, is problematic for several reasons. For starters, the world of cryptocurrencies is increasing. Given resource constraints and many other priorities, regulators are fraught to acquire the talent and skills to keep pace. Surveillance of crypto markets is difficult because data is inconsistent, and it is difficult for regulators to monitor thousands of participants who may not be subject to specific disclosure or notification requirements.
I try to catch up
One complication is that the terminology used to describe different activities, products, and stakeholders is not globally harmonize. The term “crypto-asset” refers to a broad spectrum of digital products secretly issued using similar technology (cryptography and often distribute ledgers) that can stored and traded primarily using digital wallets and relations.
The actual or future use of crypto assets can simultaneously capture the attention of multiple national regulators for banks, supplies, securities, and payments, among others—with fundamentally different agendas and objectives. Some regulators may arrange consumer protection, others safety and soundness or financial honesty. And there is a variety of crypto actors—miners, validators, procedure builders—that are not easily cover by traditional financial regulation.
Can Cryptocurrencies Be Regulated
Entities that operate in financial markets are usually authorized to carry out specific activities under certain conditions and with a define scope. But the relate governance, prudence, and fiduciary responsibilities not easily transferred to participants, who can be challenging to identify due to the underlying technology or sometimes playing a casual or voluntary role in the system. Furthermore, regulation may need to clarify some conflicting functions that have become concentrated in centralized entities, such as cryptocurrency exchanges.
Finally, in addition to formulating a framework to regulate actors and activities in the crypto ecosystem. National authorities may also need to take a location on how the underlying technology used to generate crypto assets aligns with other public policy objectives, such as the enormous consumption of energy to “mine” certain types of crypto assets.
Comparison of national approaches
It is not that national authorities or international regulatory bodies have been inactive; much progress has made. Some countries (such as Japan) have corrected legislation or introduced new legislation addressing crypto assets and their service providers, while others and the European Union) are in the drafting stage. But national authorities generally took very different approaches to the regulatory policy of crypto assets.
Financial Stability Board began
The Financial Stability Board began to monitor the crypto asset markets, published a series of principles to guide the controlling treatment of global stablecoins, and is now formulating guidelines for the widest variety of crypto properties, including unbacked crypto assets. Other regulators are following suit, with work on applying the principles for financial market infrastructures to systemically important stablecoin deals (Committee on Payments and Market Infrastructures and Can Cryptocurrencies Regulated IOSCO) and on the prudential treatment of bank exposures to crypto assets (Basel Committee on Banking Supervision).