For many, “regulation” and “cryptocurrency” embody clashing ideals. In the early days, Bitcoin was seen as a way to sell illegal items on dark web sites like Silk Road. Today, Bitcoin has been adopted as a legal currency by El Salvador and is seen as a lifeline for everyday individuals in economically weaker countries across the world. The idea that Bitcoin would remain a means to circumvent taxes and regulation was a fallacy. In order to reach any level of adoption, Bitcoin would need to be accepted in part by the existing financial system to permit individuals to conduct their first fiat-to-crypto transaction. Following the collapses of numerous crypto institutions from Celsius to FTX, regulation is now seen as a welcomed advancement to protect the individual and provide the foundation for a future digital economy.
Here are some areas in which regulation can be beneficial:
Stablecoins: There have been major headlines in the stablecoin regulation sphere in the past few weeks. The SEC announced a lawsuit against Terra Luna, and Paxos has been ordered to stop issuing Binance USD stable coins ($BUSD). The Binance stablecoin has been temporarily unaffected by this news, but the April 2022 crash of Luna’s $UST stablecoin destroyed over $60 billion in wealth. Stablecoins are designed to be backed 1:1 by cash or short-dated securities and can be redeemed for their dollar equivalent. Transparency and oversight into these holdings is a vital safety check as stablecoins are the lifeblood of crypto, making up over $135 billion today. Just this January, the Hong Kong government issued a statement on how to regulate stablecoins by establishing governance rules on reserve management and token issuance.
Staking as a Service: Last week, Kraken settled with the SEC to close its staking operation and pay a $30 million fine. The SEC claimed that Kraken insufficiently publicized the risks associated with staking digital assets on their platform in return for yield. At the time, Kraken had over $2.7 billion in user assets on its platform, with 135,000 accounts taking part in staking. It takes a minimum of 32 ETH (over $50,000 today) and the operation of an Ethereum node to stake on the Ethereum blockchain directly. Staking-as-a-service benefits the retail investor by granting access to the ~4% yield without the hassle of setting up a node. Coinbase’s staking service has yet to be affected, but users are left wondering about the legality of their product given the lack of regulatory clarity,
It is clear by the sentiment on Twitter and by the price declines of crypto assets relative to their highs that trust in the digital asset space is waning. This trust will need to be rebuilt in order to onboard the next wave of crypto users, but events like these usually mark bottoms in any new asset class. Clear rules outlining government regulation would be a big step in that direction. Regulation of digital assets can create opportunities for businesses to innovate. By having clear rules and regulations, businesses can develop new products, services, and platforms that comply with the law. As the digital asset space continues to grow, governments need to continue to monitor the industry and implement regulations to ensure that the industry operates fairly and transparently.
Joe Robert is currently the Chief Executive Officer of Robert Ventures, with over 20 years of asset management experience. Since he started Joe has created predictable double-digit returns for investors & Partners. Joe has invested in seed rounds with equity and tokens, along with a portfolio of Bitcoin, Ethereum, and other top cryptocurrencies.
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