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As the FTX situation worsens, calls for regulation become stronger.

Some cryptocurrency businessmen, academics, commentators, and legislators are now more in agreement than ever on regulation because of the FTX scandal.

Photo by Tingey Injury Law Firm / Unsplash

Some cryptocurrency businessmen, academics, commentators, and legislators are now more in agreement than ever on regulation because of the FTX scandal.

What led to the demand for regulations?

As the fallout from the FTX crash continues to ripple across the sector, crypto executives and lawmakers are becoming more vocal in their requests for industry regulation. In the past 24 hours alone, Maxine Waters, the chair of the US House Financial Services Committee, and Christine Lagarde, the head of the European Central Bank (ECB), have advocated for regulation and oversight of cryptocurrencies in the European Union as an "essential requirement."

United States Senator Cynthia Lummis, a cryptocurrency proponent, called the collapse of FTX a wake-up call on November 28. According to The Financial Times (1) The bipartisan law Lummis offered this year would have averted the FTX collapse because authorities could determine if an exchange dropped below the threshold "Immediately," she claimed in an interview at the Financial Times' Crypto and Digital Assets Summit.

What benefits would regulations provide to companies?

If those conditions had existed for FTX, they would have raised red flags and prompted regulatory enforcement actions and assessments by federal regulatory bodies.  Meanwhile, Binance CEO Changpeng Zhao stated at a live presentation at the University of Nicosia as part of a Binance Meetup Nicosia that he thinks regulation is a method to advance the sector, "protect customers," and impose repercussions to anyone found breaching the law.

Stephanie Link, a Chief Financial Strategist and Portfolio Manager at the investment firm Hightower Advisors (2), have also advocated for additional regulation, claiming that until there is legislation, cryptocurrency is "Broken and meaningless." Tom Dunleavy, a senior research analyst at the crypto analytics company Messari, expressed a similar pro-regulation stance in a post on Twitter on November 28. He noted that greater regulation of cryptocurrency would open the door "for large volumes" of new investors. The ambiguous regulatory framework, according to Dunleavy, is the main issue for institutional investors when considering a cryptocurrency investment.

The cryptocurrency analyst cited the findings of the Coinbase-sponsored 2022 Institutional Investor Digital Assets Outlook Survey (3), which revealed that just over half of respondents considering investing in cryptocurrencies were concerned about the unpredictability of the regulatory environment.  Following the collapse of FTX, banking and financial services company JP Morgan stated in a note dated November 24 that it anticipates there will be more urgency in putting in place a uniform structure. The company claims that laws will probably be adopted from the conventional financial system, "thereby promoting a convergence of the crypto ecosystem towards the conventional financial system."