Increased regulatory control in the crypto sector

Source: AdobeStock / ninika

Global company RegTech (regulatory technology)CUBE said there has been a sharp increase in regulations targeting the crypto industry, with regulatory bodies mainly in North America and Europe targeting everything from non-fungible tokens (NFTs) to stablecoins and ordinary cryptocurrencies.

In a new report on the regulatory outlook for the crypto industry, CUBE said there has been a 7.436% increase in regulatory messages related to cryptocurrencies over the past four years, compared to before 2018.

For 2021, the report found a sharp increase in new regulations using the terms "Virtual & Cryptocurrencies."

Regulations focusing on other cryptocurrency-related topics such as "Bitcoin"," "Digital asset", "Crypto" and "Non-fungible token (NFT)" also experienced significant growth last year, albeit to a lesser extent than "Virtual & Cryptocurrencies".

The report also states that the change in the use of various terms shows that "a new iteration" in crypto tends to be developed just as regulators have "come to terms with the latest development."

In addition, the report acknowledged that the cryptocurrency market has already grown to become a key element of the global financial system and that risks from cryptocurrencies could spill over into traditional markets.

"As crypto investor participation increases, so do the risks that market volatility for cryptocurrencies could have a ripple effect for the global economy. It is rapidly becoming a risk to financial stability," the report said.

CUBE added that most of the regulatory issuance comes from North America and Europe, accounting for 51% and 32% of all new regulations in the industry, respectively.

In these regions, the US Securities and Exchange Commission (SEC) and the UK Financial Conduct Authority (FCA) have been among the most active in issuing new regulations.

Among the issues that CUBE believes regulators have missed is the sustainability aspect of cryptocurrencies. According to CUBE CEO Ben Richmond, global regulators must push ahead with regulations that show that cryptocurrencies can "thrive without compromising" efforts to mitigate climate change.

Although Richmond admitted that there are "aspects of ESG [Environmental, Social, and Governance] and crypto that work in tandem," he said that failure to address the environmental impact of cryptocurrencies will lead to "an inevitable clash of two titans, which could greatly set back the trajectory of the modern financial world."

Looking ahead, the report states that regulators face a universal challenge in managing crypto risks  globally. Although many national regulators, for the time being, seem to focus on stablecoins as the most urgent area to regulate, there is "uncertainty as to whether a regulatory regime will hold" without greater global cooperation.

In conclusion, the report states that "time is running out before the volatility of cryptocurrencies spills over into global financial stability." As a result, it is likely that regulators, in an effort to achieve faster results, "will expand existing regimes to cater to cryptocurrencies."

The report added that,

"In turn, they could use stablecoins as a model for the upcoming new regulation. Undoubtedly, international bodies will work tirelessly to tie centralized regulation to a decentralized currency."

To find out more:

- Anti-money laundering standards also for NFT

- EU imposes stringent new regulations on cryptocurrencies

- EU reaches agreement on  Unhosted wallet regulation

- The FATF control body against money laundering

- SEC: Ethereum is not a commodity, Bitcoin is not the only one

- The strength of crypto for the SEC.

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