With so much happening all at once in the crypto space, it should come as no surprise that chaos has ensued.
Several bills with multiple agencies having several jurisdictional functions are in both houses.
Political considerations aside, a comprehensive crypto regulatory framework will come from Capitol Hill after negotiations, reconciliation processes and further debates.
As the world’s strongest democracy continues to figure out “what belongs where”, other countries have one form of legislation or the other.
That won’t remain so for too long.
That’s what the industry doesn’t have: time.
Several industry experts gave us their thoughts.
Here’s what they had to say.
Dr. Shira Brezis, CEO & Co-founder of Redefine
“The objective should be to strike a balance between fostering unrestricted innovation and ensuring suitable regulatory measures. Currently, the regulatory ambiguity represents a roadblock to this equilibrium. While we value the attempts by the SEC, CFTC, and FinCEN to prevent fraud and abuse, it’s apparent that over-regulation, uninformed regulation, or misapplication of regulation could suppress innovation and impede the sector’s growth. Legislation like the Digital Asset Market Structure and Investor Protection Act and the Responsible Financial Innovation Act offer potential clarity. However, it’s crucial to remember that these laws, originally not designed with crypto in mind, should serve as guiding principles rather than rigid regulations. Applying these old laws directly to crypto could lead to unintended consequences, like categorizing certain crypto financial instruments as “securities” merely because existing terminology and regime dictate it. The success of these acts depends on a nuanced interpretation that considers crypto’s unique characteristics while promoting consumer protection and innovation.
We must acknowledge concerns from traditional financial institutions and consumer groups, who call for stronger oversight to protect against potential threats to their business models and market fraud. These concerns highlight the urgent need for a comprehensive regulatory framework that mitigates risks while enabling innovation. With the Biden administration showing openness to cryptocurrency regulation, and the European Union contemplating similar measures, now is the time to establish a global, cooperative regulatory framework. Such an approach would make the rules of the game clear and consistent across borders, promoting a vibrant, competitive, and innovation-friendly environment.
The crypto industry is still in its infancy, and its regulatory landscape will inevitably evolve in the coming years. As we navigate this changing terrain, we should aim to strike a balance: facilitating innovation while safeguarding consumer interests. Through balanced regulation, we can unlock the revolutionary potential of cryptocurrencies and DeFi, creating a win-win scenario for all stakeholders involved.”
Konstantin Boyko-Romanovsky, CEO of Allnodes
Recommendation 1: Regulatory powers and tools
Authorities should have and utilize the appropriate powers and tools, and adequate resources to regulate, supervise, and oversee crypto-asset activities and markets and enforce relevant laws and regulations effectively, as appropriate.
Opinion concerning the first proposed recommendation on regulatory powers and tools:
Recommendation 1’s vague language and expansive scope cause concerns about stifled innovation and overreach. Without defined boundaries, authorities may misuse powers in ways that hinder entrepreneurs through unclear, inconsistent rules and divert resources from other priorities. Effective crypto regulation must be precise, proportional, and careful to protect market integrity without suppressing growth and creativity. The way it is worded now is unclear and could unfairly harm businesses and individuals who are following the rules in the important field of crypto.
Recommendation 2: General regulatory framework
Authorities should apply comprehensive and effective regulation, supervision, and oversight to crypto-asset activities and markets – including crypto-asset issuers and service providers – on a functional basis and proportionate to the financial stability risk they pose or potentially pose, and consistent with authorities’ respective mandates in line with the principle “same activity, same risk, same regulation.”
Opinion concerning the second proposed recommendation on the general regulatory framework:
Treating diverse cryptocurrencies identically to traditional finance under the same regulatory standards is wrong. Imposing identical regulations on all crypto assets, regardless of differences, is also wrong. So, the principle “same activity, same risk, same regulation” is puzzling. It can mean so many things.
We need to keep in mind that crypto’s decentralized design fundamentally differs from traditional financial instruments, requiring distinct policymaking tailored to the unique characteristics of each cryptocurrency type. Although prudent guardrails can protect against misconduct, blanket overregulation risks stifling innovation. Achieving optimal balance will require nuanced guidelines calibrated to each cryptocurrency’s attributes. It cannot be a one-size-fits-all mandate.General opinion on the rest of the proposed regulatory recommendations
In general, the proposed regulations for cryptocurrencies bring forth important considerations, emphasizing international cooperation, risk management, and the need for accountability in the rapidly evolving blockchain industry. However, turning these concepts into workable policy requires collaboration and care. Let’s not forget the crypto ecosystem’s unique characteristics and blockchain technology’s decentralized nature. They were never intended to align perfectly with traditional regulatory policies or one-size-fits-all solutions. The aims are valid indeed, but achieving the desired results will take creativity, not dogma.
Cuautemoc Weber, Co-Founder and CEO of Gateway.fm
“Capitol Hill’s regulatory efforts on the crypto space can have far-reaching implications for the entire cryptocurrency industry. The growing popularity and mainstream adoption of cryptocurrencies have caught the attention of lawmakers and regulators worldwide, prompting them to address various concerns related to investor protection, anti-money laundering (AML) measures, and tax compliance, among others.
From an investor protection perspective, regulatory efforts aim to safeguard investors from fraudulent schemes, scams, and misleading practices prevalent in the crypto space. Stricter regulations may include disclosure requirements, increased transparency, and measures to combat market manipulation.
The rise of cryptocurrencies has also raised concerns about their potential use in money laundering and illicit activities. Regulatory efforts may involve imposing AML and Know Your Customer (KYC) requirements on cryptocurrency exchanges and service providers.
As cryptocurrencies gain widespread adoption, governments are increasingly focusing on taxation in the crypto space. Regulations may require crypto users and businesses to report transactions for tax purposes, leading to greater tax compliance.
However, there is significant risk of both under-regulation and over-regulation across the space. Stricter regulations may conflict with the principles of decentralization at the heart of the Web3 movement. Finding a balance between regulatory oversight and maintaining these fundamental principles is challenging.
Overall, Capitol Hill’s regulatory efforts will significantly shape the future of the crypto space. There are currently more than four bills in different parts of the legislature bodies and there seems to be a balancing act happening around which regulations and which bodies will manage to pass a comprehensive bill. Balancing consumer protection and innovation will be crucial to foster a thriving and sustainable cryptocurrency ecosystem. One of the biggest dilemmas revolves around tokens and securities and which enforcement body will need to manage their scope of regulations around how these new financial instruments are regulated and monitored, as seen with the current discussions around Bitcoin ETFs and the Ripple case around being securities. What’s imperative is close collaboration between regulators, industry stakeholders, and the crypto community. This will be an essential triage in creating effective and well-rounded regulatory frameworks moving forward.”
Liam Bussell, CMO of Cloudtech
“There has been a lot of activity recently but using the XRP ruling for example – while being one of the SEC’s enforcement actions, does not signify an immediate upheaval of the crypto sector. Instead, it should be viewed as part of the ongoing efforts to establish a regulatory framework for digital assets. The slow and steady pace of such rulings indicates that the SEC is carefully assessing each case before making decisions, laying down bricks in the wall of crypto regulation.
This measured approach may lead us to wonder if the SEC’s aggressive pursuit of crypto firms will always go their way. The XRP case serves as a reminder that while regulatory oversight is essential, it must be balanced with the need for innovation and growth in the crypto space.
As the market matures, it is crucial for regulators to strike the right balance between consumer protection and fostering an environment conducive to technological advancement.”
Related: What are the Best Compliance Practices for the Crypto Space? (Round Table Interview)
Pannathorn (Pan) Lorattawut, CEO, VUCA Digital
“Capitol Hill’s regulatory efforts on the digital asset and Web3 industries will certainly have an impact on the industry more broadly and can set the tone for regulators in other countries who are on the sidelines. Japan and the British Virgin Islands are great examples of crypto-friendly countries. The American legislature could choose to be on this side and become one of the leaders in the blockchain business.
Scandals like FTX and Terra impact the whole market. When these kinds of incidents occur, customers are looking for the authorities to step in. However, it’s crucial to have the right balance between investor protection and support for business initiatives.
The heavy rules and regulations will bring constraints and limit the growth of the industry. The cost of running businesses following the anticipated compliance rules will likely be higher. On the other hand, if done right, this can support the mass adoption of crypto businesses and digital assets.
It’s also important to have a clear direction in terms of regulations from the authorities. A balance between the premise of Web3 and customer protection should be seriously considered. The authorities cannot stop digital assets, blockchain technology, and Web3 businesses from innovating. Instead of putting a stop sign on them, they should play a role in pushing for growth while protecting the investors.”
Related: US Treasury Dept. Insist Crypto Regulation Is Critical For Sector To Go Mainstream
Serra Wei, Founder and CEO of Aegis Custody and Aegis Trust
“The two significant bills that are most important to watch are the crypto market structure bill and a stablecoin bill.
For the crypto market structure bill, it would expand the Commodity Futures Trading Commission’s (CFTC) oversight of the crypto industry while clarifying the Securities and Exchange Commission’s jurisdiction. This would result in more regulatory clarity and drastically increase institutional adoption in the US.
For the stablecoin bill, depending on how the final bill is written, a version mandates the Fed to write requirements for issuing stablecoins but would still let state regulators oversee the companies issuing the tokens.
Both would significantly change the industry as a whole and Institutional adoptions will help fuel Aegis Trust & Custody’s growth as we are the only US qualified custodians which also has a regulated digital asset custodian license in Hong Kong to capture growth as more US-based crypto companies look beyond US operations.”
Brock Pierce, Chairman of the Bitcoin Foundation
“The House and Senate bills are a welcome step by the digital assets industry in providing needed regulatory clarity over securities and commodities and ensuring that financial innovation stays in the United States.
If Congress fails to act, the US will continue to lose its competitive advantage to other countries such as China, as talent and innovation continue to leave the US due due to current market uncertainties with respect to digital assets.
We are hopeful that the end result of these bills will turn into law by end-of-year and that all members of Congress seek input from the digital asset industry as many have done to date in this important legislative process”.
Michel Caspers, Co-Founder & CMO at Unity Network
“Regulations are finally on the horizon, which should be bringing a sense of relief to the crypto space. It is crucial for investors to gain clarity on their investments and eliminate concerns about potential repercussions from government entities.
The upcoming bills, awaiting a vote from a congressional committee this week, have the potential to establish a more stable crypto landscape. Particularly noteworthy is the proposal to place cryptocurrencies under the jurisdiction of the Commodity Futures Trading Commission (CFTC) instead of the Securities & Exchange Commission (SEC). This shift would alleviate the pressure that the SEC, led by Gary Gensler, has been exerting on the markets and cryptocurrencies. Consequently, the market would flourish with regulatory clarity, attracting more companies to launch tokens due to the ease and prospect of acquiring increased liquidity.
Despite the possibility of upcoming regulations being challenging for the markets, investors should view it as a positive development. A thorough cleansing is necessary to eliminate bad actors within the crypto space and hold them accountable for any wrongdoing. While this may have a temporary negative impact on the markets, it will ultimately yield long-term benefits.”
Emil Åkesson, Founding Partner and Chairman at CLC & Partners
“Finally, after a long and sometimes contentious debate, the legislature is finally making progress toward crypto regulations. Recognizing the benefits of the technology. This is based on the very real fear that U.S. will fall behind in the innovation race on the crypto scene. To be proactive I clearly the right way to go about this topic, and now there seems to be enough bi-partisan traction to move this forward.
The hope of the industry is that this bill will create a safe haven for industry innovators, where they can work in an environment that is conducive to growth. The fear is that the balancing act of regulating this area will go too far and as such, instead stifle innovation.
The impact of these regulations on the crypto market remains uncertain. There has been some market volatility connected to the news of these steps being taken. Suggesting that the investors are indeed keeping a close eye on the developments. It does seem that the regulatory landscape might finally move towards understanding and leveraging the technology benefit for the benefit of the otherwise so innovative U.S. start-up scene. It is still mostly up in the air, however. The technology continues to move faster than the regulators, and this will most likely continue. The question is if the efforts to create a framework from the regulatory side will be brand enough to make it future-proof, or if it’s just a hollow exercise.”
Related: The US Government Is Targeting Crypto And Crypto Firms…Be Prepared…
