Ashley Alder, the Chair of the Board of the International Organization of Securities Commissions (IOSCO) and CEO of the Hong Kong Securities and Futures Commission, said that the market is soon to witness the launch of a global joint regulation body to better coordinate cryptocurrency rules.
Adler said that officials’ main concerns lag on the risks related to cyber security, operational resilience, and a lack of transparency in the crypto industry. During an online conference organized by the OMFIF Thinktank, Adler said: “If you look at the risks we need to address, there are multiple, and there is a wall of worry about this (crypto) in the conversations at an institutional level.”
The growing popularity of cryptocurrencies, especially Bitcoin, has steered the global regulators and central banks worldwide to focus more on this industry. While there is no global regulation to manage cryptocurrency rules yet, a coordinated body could be launched next year.
The Need for Cryptocurrency Regulation
The cryptocurrency market has been witnessing a consistent downfall after the Feds changed its rates last week. For example, Bitcoin, one of the biggest cryptocurrencies by market capitalization, fell to its lowest at $25,401.05 in December 2020. This widespread collapse has sent all other cryptocurrencies into a tailspin, raising investors’ concerns regarding systemic stability.
For some time, cryptocurrency has been regarded as a tool that could transform and revolutionize the face of the financial industry, but now the scenario has changed completely. In early 2022, data released by the International Monetary Fund (IMF) indicated a link between the S&P 500 and cryptocurrency. This raised concerns about the collapse of the stock market and cryptocurrencies.
Following the release of this data, the Financial Stability Board warned of blowbacks for the global financial stability if the correlation between the cryptocurrencies and the growth rate of the S&P 500 continues. In any case, an in-depth macroeconomic analysis was still nowhere to be seen. In addition, the nature of crypto-assets is such that it allows for cross-border exchanges without the involvement of any central body or financial institutions.
At the same time, the latest technologies such as non-fungible tokens (NFTs), tokenization, DeFi, and decentralized autonomous institutions pose a risk to traditional finance models that demonstrates who is considered a “person,” how “value” can be exchanged, and what is “value” in actual. This violates existing capital controls, cross-border transactions, and intellectual property rights regulations. Moreover, it could also cause uncertainty in the taxation scenario, alongside increasing other policy concerns.
The impact of the current dip in the crypto-assets on global financial stability, and the volatile nature of the cryptocurrency, highlights the need for prioritizing regulatory debates, both nationally and internationally.
The Current Scenario
The WEF’s Global Future Council on Cryptocurrencies indicated that there had been no globally recognized joint body in charge of cryptocurrency regulation — although other bodies have been working incessantly on calculating risks and holding discussions regarding the rise of cryptocurrencies.
Financial intermediaries and central bodies have already emphasized this growing trend on the global level. Though they share a common goal of bringing stability to the financial world and accelerating innovation, several countries have started taking the matter into their hands and implementing various regulatory approaches.
For countries from China to El Salvador, their goals appear to be in sync highly:
- Spurring innovation and economic growth.
- Protecting users.
- Preventing the occurrences of financial fraud.
- Protecting the integrity of the overall market.
The Indian Union Finance Minister Nirmala Sitharaman said: “I think the biggest risk for all nations globally will be financial fraud and leveraging currency for financing terror.” She also added a dire need for comprehensive and agile technology-oriented cryptocurrency regulations in the industry on an international level.
“The current cryptocurrency landscape cannot be mended by bringing regulations by a single country; nations across the board need to undertake similar approaches to bring stability in the finance sector,” Sitharaman added.
Countries like India have refurbished their existing laws, and others, such as Liechtenstein, have also come up with innovative models. Officials in the UAE and the European Union (EU) have come up with another approach, which includes setting up new regulatory bodies to handle the implications and events within the industry in a thorough manner.
While providing regulatory opportunities, these national differences create ambiguity and impact businesses functioning in this industry. This is followed by the lack of common standards and regulations.
For a coordinated body that works on the same objectives, nations and global organizations must collaborate, implement the best practices and transfer knowledge. Along with implementing these things, regulators should also leverage the underlying technology to build solutions for minimizing risks through public-private partnerships.