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January 17, 2023

Regulating Crypto: Why Existing Federal Regulations Need to Catch Up to Protect the Retail Investor

Since the collapse of FTX, we’re seeing the predictable knee-jerk reactions clamoring for increased regulation of the crypto market among people who, quite frankly, don’t know any better. Regulation, their argument goes, will help reduce crypto’s volatility and protect naive investors from bad actors in the crypto space.

This argument fails to recognize an important fact — there are already plenty of regulations on the books that apply to the crypto industry. That’s not what’s missing. What’s missing is the ability of federal regulations to “catch up” to crypto and properly adapt.

Bridging the Gap: Enhancing Existing Regulations

The current regulatory system is fundamentally outdated, relying on technology developed long before the advent of cryptocurrencies. This gap makes it difficult, if not impossible, for governments and regulatory agencies to monitor and manage the billions of transactions occurring daily in the crypto space.

The solution isn’t necessarily more regulation but better systems to implement and enforce what’s already on the books. A shift toward digital or blockchain-based regulatory systems could transform the landscape, enabling near-instantaneous audits and streamlined compliance processes. Tools like CertiK, which specializes in auditing cryptocurrencies, offer a glimpse into the potential of modern technology to enhance transparency and oversight. By embracing such systems, regulators can provide the clarity and protection investors need without stifling innovation.

Fragmented Approaches to Regulation

Crypto regulation varies significantly across the globe. The U.S. is often regarded as a leader in establishing regulatory frameworks but lags in adapting to new developments. Europe, by contrast, has shown a greater willingness to simplify and streamline its approach, resulting in a more crypto-friendly environment. This divergence creates an uneven playing field, where some jurisdictions accelerate adoption while others seek to slow it down to catch up.

Such disparity underscores the importance of adaptability. While slower-moving regulatory environments may seek to delay crypto adoption, firms like Bursera Capital remain committed to agility. By staying small and nimble, we can quickly adapt to changes and continue to outpace competitors in an ever-shifting market.

Education: The Missing Piece of the Puzzle

Beyond regulation, the real issue in the crypto market is a lack of education. Many investors enter the space driven by hype rather than understanding, often chasing headlines without grasping the fundamentals of digital assets or finance. This lack of knowledge not only exposes investors to risks but also makes it harder to detect and prevent abuses within the system.

Empowering investors through education is essential. By providing accessible resources and fostering a deeper understanding of the crypto ecosystem, we can build a more resilient market. This approach aligns with our philosophy at Bursera Capital: equipping our clients with the knowledge and tools they need to make informed decisions.

The Path Forward: Adaptation Over Expansion

The fall of FTX has prompted many to call for a crackdown on crypto, advocating for layers of new regulation. However, adding complexity to an already well-regulated industry is unlikely to yield the desired outcomes. Instead, the focus should be on refining existing frameworks and leveraging technology to enhance their effectiveness.