The market for cryptocurrencies is currently estimated to be worth about $2 trillion due to the exploding popularity of Bitcoin and other virtual currencies like Dogecoin, while crypto businesses have generated vast revenues offering financial products that are not constrained by crypto regulations.
The market has developed extremely fast, therefore regulations were not able to kept up. Policymakers have discussed about reining in cryptocurrencies under a new regulatory framework for years. But so far, that did not happen, which leaves millions of people who trade cryptocurrencies and assets related to them without clearly defined rules of trading.
Although, the past decade has seen several structural changes in know your customer (KYC) and anti-money laundering (AML) regulations in Europe and globally, lately, hackers have demanded ransomware payments in Bitcoin, because it is easy to transfer and hard to trace. And there have been plenty of reports of thefts and heists at cryptocurrency exchanges in which cybercriminals have absconded with other people’s virtual holdings. As these financial crimes and crypto itself evolves, so have regulatory bodies’ efforts to monitor, address and enforce restrictions. Internationally, the most prominent monitoring body is the Financial Action Task Force (FATF), which outlines general guidance and determines best practices in anti-money-laundering practices and combating the financing of terrorism.
The SEC (Securities and Exchange Commission) has just announced plans to sue the USA’s largest crypto exchange Coinbase relating to an offering that gives investors interest. The SEC says Coinbase is not regulated to offer such a product as they consider it to be a security. Such a move reveals a turning point in the world of cryptocurrencies. No longer is cryptocurrency lending a fringe asset class operating in the wild wild west of the internet; the time has come for the sheriff to lay down the law. This move by the SEC should be seen a significant warning sign that they intend on going head to head with crypto-related businesses.
The Wirecard scandal was a particularly salacious example, in which the investigation into widespread fraud revealed a chain of shell companies involved in illegal distribution of narcotics and pornography. Over at Danske Bank, some $227 billion was laundered through an Estonian subsidiary, going virtually unnoticed for nine years.
Many of the big companies in crypto have been regulated as money service companies, but if crypto and crypto lending is being classified as a security then they have to sell their products very differently and change the way they deal with their customers. Besides, new regulations are being drafted for any financial institution offering crypto services that are only being offered to those that are registered securities businesses already.
To address the challenges of the fast-evolving crypto world, the European Union has begun to introduce more stringent financial regulations that further bolster the regulatory system in order to improve licensing models. Many member states now regulate crypto assets individually, and Germany is leading the way in being the first to regulate cryptocurrencies.
New York University Law School Professor Robert J. Jackson Jr., who used to be an SEC commissioner, says clarity is incredibly important. „It’s past time for regulators to be clear about who is responsible for this, and that clarity will be beneficial to the market,” he says. „It will be beneficial to investors. It will even be beneficial to those members of Congress and the other public policymakers who want to know whom to ask, and who to hold accountable for what is going on in those markets.”
Many believe new regulations could help cryptocurrencies become a bigger part of our daily lives. For example, some countries like El Salvador and Ukraine want to make Bitcoin their official currency, while some big companies, including AMC Theaters, have already announced they will accept cryptocurrencies as payment.