The recent failure of Terra, the company behind the third-largest stablecoin at one point, sent cryptocurrencies plummeting and called into question the industry’s legitimacy. Tens of billions of dollars worth of market capitalization are destroyed by such a catastrophe, and investors suffer catastrophic losses. A situation like this will prompt regulators to act more quickly to monitor the digital asset market.
Different strategies have been used by many countries around the world, and these countries are working to adopt a more controlled strategy. The framework that has been adopted ultimately needs to strike a balance between giving cryptocurrency investors better security and allowing blockchain/cryptocurrency companies to advance at the rate that has aroused so much interest and anticipation.
My Personal Point of View
The world has extremely different views on how to regulate cryptocurrencies. Although the customary course of action is to regulate financial services, no clear regulatory framework for this asset class has yet been established. But in the United States in March, President Biden issued a long-awaited executive order that particularly recognized the potential of the cryptocurrency sector and called for the proper development of digital assets.
This mission is launching the endeavour to investigate the recognized hazards connected to both the established financial system and the emerging Web3 environment, as well as to address helpful problem-solving. The directive instructs government bodies to coordinate their regulatory initiatives with an emphasis on privacy, security, financial inclusion, and the competitiveness of the US currency globally. In addition, the Responsible Financial Innovation Act was just introduced in the US.
By doing this, it will be possible to prevent financial innovation from harming consumers. The bill also takes into account how virtual currencies affect the environment. This is crucial for sustainability over the long term.
The neighbouring country, Canada, has authorised Bitcoin Exchange Traded Funds (ETFs) and vehemently announced guidelines forcing regional cryptocurrency trading platforms and traders to register with provincial regulators. Canada only recently implemented a clear registration procedure for trading platforms that provide local users with custody services. This has led to a number of businesses registering in accordance with the new regulations, and the industry is growing strongly in the area.
Additionally, the Middle East and Asia are making progress. This year, Dubai passed its first cryptocurrency law to control digital assets. The Ministry of Finance in India, on the other hand, views cryptocurrencies with suspicion and compares them to Ponzi schemes. Nevertheless, India placed second out of 154 nations in the bitcoin adoption index from the previous year, indicating the necessity for the government to reevaluate its position.
Switzerland most likely granted licences to two cryptocurrency banks and passed a blockchain law in Europe in 2019. For the regulation of issuers and service providers who trade cryptocurrency assets within the EU, the EU is putting out a broader framework. A draft regulation that will be discussed with EU officials, heads of state, and governments of member states was just approved by the European Parliament. With the implementation of the new rule, non-EU crypto platforms and service providers will be able to apply for licences that will allow them to conduct business across all EU member states using a European “passport.”
Well, in my Fatherland, Nigeria, nothing has been put in place to help regulate cryptocurrency in the country. Which has caused some mixed approaches to crypto in Nigeria. Many are using cryptocurrency as a cover for their criminal acts because no governmental body has been created to monitor and regulate the activities of cryptocurrency in the country. The Nigerian government hasn’t even recognised crypto, talk less about regulating it. This is indeed a negative response from the govt, knowing fully well how Nigeria tops in crypto adoption globally.
Regulation Reduces Financial Risks in Cryptocurrency
When innovation is carried out successfully, it leads to exciting growth and prosperity, but when things go wrong, it inevitably has negative effects. The independence that the bitcoin market can have in a developing environment needs to be realistically assessed.
Stringent procedures, such as B. Pre-approval of Operating Issuers, Capital and Liquidity Requirements, and Accounting and Auditing Requirements, will need to be implemented for the proposed new regulation to go into effect. Customers now have the assurance to keep using cryptocurrency as a substitute for conventional banking solutions.
Fine Balance is Needed to Deliver Growth in Crypto Governance, which Regulation can do
The widespread use of bitcoin infrastructure in trading and financial markets depends on regulatory certainty and sound governance. Furthermore, if correctly targeted, broader regulatory guidelines could assist in reducing speculation in cryptocurrency assets.
Overall, it is evident that regulatory compliance is still a work in progress on a global scale. However, whatever actions are made moving ahead, they should be supported by a few basic tenets, probably best stated by US Treasury Secretary Janet Yelland in a recent address when she said:
Our regulatory structure needs to be built to encourage ethical innovation, especially when risks that could destabilise the financial system and the economy are being managed.
The future prospects of an industry that blinds many and still alarms others will likely be most affected by the balance that regulators must strike. But what do I know? This is just my opinion!