Regulating Crypto: What’s Ahead for Cryptocurrency Regulation?
The collapse of FTX has reignited global conversations about the need for comprehensive cryptocurrency regulation. While the future remains uncertain, the actions of governments and financial institutions provide clues about the changes we may see in the months ahead.
Government Responses to Crypto Regulation
Europe
Banking behemoths like JP Morgan and Wells Fargo are both predicting big changes in crypto regulation in 2023. They note that one obvious place to start, rather than drafting new legislation, is to put existing regulatory proposals on the fast track to adoption. One great example of this is the Markets in Crypto Assets (or MiCA) bill in the European Union.
Far from a new proposal, MiCA has been working its way through the EU’s legislative process since 2020. According to the European Parliament’s official website, MiCA “would establish harmonized rules for crypto-assets at EU level, thereby providing legal certainty for crypto-assets not covered by existing EU legislation.” The bill seeks to enhance “the protection of consumers and investors as well as financial stability [by promoting] innovation and use of crypto-assets.” (1)
MiCA is expected to pass its final hurdle soon and come into force in 2023 or early 2024.
El Salvador
El Salvador stands out as a unique case in the global crypto landscape. In 2021, it became the first country to adopt Bitcoin as legal tender, requiring businesses to accept it as payment. While this bold experiment has been met with mixed reviews from its citizens, the country is doubling down on its digital asset ambitions.
According to a recent report, the country’s legislative assembly is considering a bill to establish a National Digital Assets Commission. This commission would oversee regulations for “digital asset issuers, service providers and other participants involved in the public offering process.” (2)
The United States
In the U.S., Treasury Secretary Janet Yellen has emphasized the need for stronger oversight of cryptocurrency markets.
Following the FTX collapse, Yellen stated, “The recent failure of a major cryptocurrency exchange and the unfortunate impact that has resulted for holders and investors of crypto assets demonstrate the need for more effective oversight of cryptocurrency markets.” (3)
Yellen stated, "Going forward, it’s vital we do what is necessary to address these concerning risks and act to protect consumers and promote financial stability." While specifics remain unclear, it is evident that regulatory changes are on the horizon. Yellen underscored the importance of protecting consumers and promoting financial stability, signaling a proactive approach to addressing vulnerabilities in the market.
Perspectives from Financial Institutions
As stated, major financial institutions also anticipate shifts in the regulatory landscape.
JP Morgan CEO Jamie Dimon has long been critical of cryptocurrencies, labeling them as “frauds” and “decentralized Ponzi schemes.” Despite Dimon’s personal views, JP Morgan analysts predict that new regulations will likely focus on the custody and protection of digital assets, aligning crypto markets more closely with traditional financial systems.
Dimon’s personal opinions aside, JP Morgan’s analysts feel that new regulation in the U.S. is likely. Though they aren’t sure what form that may take, the analysts indicate “that new regulatory initiatives are likely to [focus] on ‘custody and protection of customers’ digital assets as in the traditional financial system.’” (4)
Similarly, Wells Fargo has expressed general support for sensible regulation that enhances consumer protection and provides market clarity. While the specifics of “sensible regulation” remain undefined, the bank’s stance reflects a broader acknowledgment of the need for oversight in the evolving crypto ecosystem.
The Implications of Enhanced Regulation
While no one can predict the exact shape of future regulations, it is clear that change is imminent. Enhanced oversight could bring much-needed clarity and stability to the cryptocurrency markets, addressing issues like fraud, misuse, and inadequate consumer protections. However, it may also pose challenges for the industry, requiring firms to adapt quickly to new compliance standards.
At Bursera Capital, our commitment to remaining nimble and adaptable positions us well to navigate these changes. By staying ahead of regulatory developments, we aim to continue delivering exceptional value to our investors, regardless of the evolving landscape.
As always, thank you for your trust and partnership as we navigate the future of digital assets together.
———————
(1) "Markets in crypto-assets (MiCA)," https://www.europarl.europa.eu/thinktank/en/document/EPRS_BRI(2022)739221
(2) “El Salvador Proposes Digital Securities Bill, Paves Way for Bitcoin Bonds,” https://www.coindesk.com/policy/2022/11/23/el-salvador-proposes-digital-securities-bill-paves-way-for-bitcoin-bonds/
(3) “Statement by Secretary of the Treasury Janet L. Yellen on Recent Crypto Market Developments,” https://home.treasury.gov/news/press-releases/jy1111
(4) “JP Morgan believes regulation will lead to convergence of crypto, TradFi,”https://cryptoslate.com/jp-morgan-believes-regulation-will-lead-to-convergence-of-crypto-tradfi/