Crypto Corner Weekly: What Investors and Businesses Should Expect Going Into 2024
Crypto regulation in the US is still uncertain, despite hopes that the FTX scandal expertly covered in an article by Forbes, would prompt clearer guidelines of the issues that can arise and the pressing concern for better regulations put in place.
For those who don't know: The founder of FTX and the crypto hedge fund Alameda Research, Sam Bankman-Fried (SPF), has been accused of being a liar and a crook. His crypto FTX token was allegedly a Ponzi scheme hidden beneath layers of jargon. SPF used it as collateral to borrow billions of dollars he could not repay. He then used this money to build an empire out of dying companies such as Voyager and Blockfight. SPF allegedly sold people cryptocurrencies like Bitcoin, but they bought an IOU. Eventually, there wasn't enough money to pay everyone at once, causing customers to lose everything. SPF reportedly misappropriated $4 billion to save his failing hedge fund and spent millions on Super Bowl commercials, campaign donations, and bribing politicians to create a crypto monopoly for himself. Critics argue that government regulations do not protect customers but protect crooks like SPF.
Instead, 2023 was marked by a regulatory crackdown on crypto companies, with a collection of individual enforcement actions, civil lawsuits, and criminal cases. The global regulatory landscape for cryptocurrencies lacks consensus, with different countries adopting varying approaches to classification and regulation. In the U.S., the ambiguity between treating cryptocurrencies as securities (overseen by the SEC) or commodities (regulated by the CFTC) exemplifies the challenge of establishing clear guidelines. This dichotomy highlights the need for a unified regulatory framework that can adapt to the evolving nature of digital assets. The lack of clarity has frustrated crypto investors and businesses, who insist they need regulatory clarity from Washington.
As we enter 2024, the industry demands clear guidelines from lawmakers, especially as regions worldwide, such as Australia and the EU, lay out clear crypto guidelines. Before announcing his decision not to run for re-election this year, Chairman Patrick McHenry (R-NC) of the House Financial Services Committee proposed legislation that created a path for the crypto market structure and delineated the jurisdiction between the CFTC and the SEC. Congressman McHenry also proposed stablecoin legislation that has gained traction in the House. Separately, Senator Elizabeth Warren is pushing forward with a bill meant to crack down on crypto crime that has gotten pushback from the industry but is also gaining co-sponsors. The crypto lobbying machine is still pushing to make the U.S. a crypto hub, but there is concern that more companies could shift priorities to expand overseas if regulators fail to bring clarity. The SEC plans to proceed with enforcement actions against Kraken, Coinbase, and Binance in 2024. urging to consider it as a demand for regulatory compliance and investor transparency grows.
Why is clarity so important? Because cryptocurrencies and blockchain technology are at the forefront of financial innovation, encompassing a wide array of digital assets, platforms, and applications. This rapid evolution introduces complexity into the regulatory landscape, as existing frameworks may not adequately address the unique characteristics of each new development. A nuanced understanding of this ecosystem is crucial for regulators to craft effective and inclusive policies.
And yet, the regulators appear to be the tortoise in this race. The pace at which the crypto industry innovates significantly outstrips the speed at which regulatory bodies typically respond to new financial products and technologies. This disconnect can lead to a regulatory lag, where outdated or ill-fitting regulations are applied to novel technologies, potentially stifling innovation and hindering the industry's growth. It also leaves regulators using old tools to build modern infrastructure. The result is a regulatory game of whack-a-mole or trying to fit a fractal peg in a square hole.
Still, we need clear regulatory guidelines to clean up an industry wrought with misconduct, misrepresentations, and missed opportunities. While regulatory efforts often aim to protect consumers and maintain market integrity, bad actors in the crypto space complicate these efforts. Regulations designed to curb fraudulent activities must be balanced to avoid penalizing the broader industry and inhibiting beneficial innovations that could advance the sector and offer new opportunities to consumers.
Achieving a harmonized regulatory framework for the crypto industry requires collaboration among regulators, industry participants, and other stakeholders. By working together, these groups can develop adaptable, consensus-driven policies that safeguard consumers, promote transparency, and support the continued growth and innovation within the cryptocurrency ecosystem. To establish a clear regulatory framework for the crypto space, regulators should consider these specific suggestions:
- Unified Global Standards
- Clear Classification of Digital Assets
- Transparent and Consistent Enforcement
- Innovation Sandboxes
- Stakeholder Engagement
- Consumer Protection Measures
- Adaptation to Technological Advances
- Inter-agency Collaboration
By addressing these areas, regulators can create a more stable, transparent, and innovation-friendly environment for the cryptocurrency industry.
Fintech Law is dedicated to the ever-changing world of cryptocurrency. Managing Director Bo Howell is consistently sought after to speak on and assist in crypto and blockchain matters with individuals and firms across the United States. As a leading figure in the cryptocurrency space, our cryptocurrency law team can guide you through even the most in-depth aspects of the crypto world. We are constantly looking for ways to improve and make experiences working with cryptocurrency for our clients and partners alike.
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Works Cited
Davis, Darreonna. “What Happened to FTX? The Crypto Exchange Fund's Collapse Explained.” Forbes, 2 June 2023, www.forbes.com/sites/darreonnadavis/2023/06/02/what-happened-to-ftx-the-crypto-exchange-funds-collapse-explained/?sh=10d0082a3cb7.
“Crypto Law Services” Fintech Law, Accessed 25 Feb. 2024, www.fintechlegal.io/services/crypto-law-services.