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Governments and regulators are just so far behind in understanding cryptocurrencies and how to regulate them

cryptodaily.co.uk 28 December 2021 15:53, UTC
Reading time: ~3 m

Behind the scenes governments and their regulators are struggling to come to terms with the intricacies of the cryptocurrency world, such as stablecoins, NFTs, DeFi, play-to-earn gaming, and many more facets of a fast-evolving cutting-edge technology sector.

On the surface though they are playing it cool, putting out the odd pronouncement to warn citizens of the dangers of dabbing in such a ‘dangerous’ world where the investor does not have the same ‘protections’ afforded by the traditional financial sector.

However, the onus is on the regulators to furiously play catch-up behind the scenes. Notwithstanding the amount of effort they must be applying to the problem, they are hamstrung by the speed, innovation, and complexities of the technology itself.

For example, it is patently obvious that the Securities and Exchange Commission, one of the most vocal regulators on crypto, is back with the dinosaurs, insomuch as the comments of Gary Gensler, chairman of the SEC, would suggest.

The SEC leader appears to believe that he will be able to shoehorn all of crypto into the same basket of securities, by applying a test from 1946 that was designed to ascertain whether Florida citrus groves were securities or not.

Surely, given the pace of technology since those times, we are due for the securities laws to be rewritten. Not just this, but given the way crypto and blockchain are changing the face of many traditional sectors, it would seem logical to have just one regulatory body that specialises in this field, and that listens to the expertise available across the cryptocurrency space.

But what we have so far is far from encouraging. A report by the Financial Crimes Enforcement Network (FinCEN) stated that the Treasury would be applying its anti-money-laundering controls to crypto, while the Financial Action Task Force actually included a mention of NFTs in its guidance on cryptocurrencies.

Of course, we also have the section in the recently passed Infrastructure Bill, that is so broad in its definition of a “broker” in crypto, that when and if it comes into force it will destroy many participants in crypto just because the reporting requirements will be beyond their powers to comply with.

Perhaps some of the governments might follow the path of China, and just outlaw any transactions to do with cryptocurrencies. Yes, this will destroy all the innovation that they bring, but it would certainly ensure that citizens would be forced to use central bank digital currencies, thereby helping the crumbling fiat monetary system to endure a while longer.

So it looks like the crypto sector is facing heavy-handed enforcement from bodies that just don’t understand it. That should make sure it is set back many years, and would do much to appease worried players in the legacy financial system.

However, should anyone in authority actually be interested in exploiting the most exciting and game-changing technology since the internet, perhaps they should think of allowing a specialised kind of crypto watchdog to operate. 

This watchdog could be composed of experts from every sector within the crypto industry, experts that would be incentivised to get the regulation right, rather than bureaucrats with an axe to grind such as the aforementioned chair of the SEC.

With a ‘fourth turning’ on the horizon, institutions are said to suffer being “torn down, and rebuilt from the ground up”. Given how the existing monetary system is right on the brink of collapse, might crypto be the people’s currency that rises from its ashes?

Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

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