Crypto needs sensible regulation, not regulation through lawsuits

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The crypto-asset industry continues to grow and mature, and the regulatory approach must keep pace.

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SOPA Images / LightRocket via Getty Images

Regulatory and compliance efforts are nothing new to the cryptoasset industry, but the recent Securities and Exchange Commission (SEC) action against Coinbase highlights a troubling trend in this rapidly changing space; regulation by enforcement. Regulation, rule-making, frameworks and the establishment of consistent guidelines on how individuals and institutions are to operate are integral parts of any sector seeking to move into mainstream.

That said, there is a difference between proactive and reasonable regulation and policymaking, and a somewhat aggressive approach that seems more aligned with repressing organizations than promoting an innovative and creative business environment.

One aspect that the current conversation about regulation and enforcement seems to overlook is that, by default, blockchain and cryptoassets are a truly global industry and are not tied to any specific geographic or jurisdictional area. In other words, this is an area that an overly aggressive regulatory perspective could undermine and potentially alter if not managed properly. The United States is one of many countries vying to become the future hub and home of blockchain and cryptoassets, and reasonable regulation is essential to this development.

Let’s take a look at some considerations that should be taken into account as policy makers seek to further develop blockchain and crypto regulation.

Don’t reinvent the wheel. It’s tempting, especially when it comes to a new and (still) emerging field like blockchain and cryptoassets, to think that any regulation or policy making has to be just as new and revolutionary as the technology it is. -same. This is simply not the case; there are many examples and models that policymakers can and should use to help establish regulations and frameworks for cryptoassets.

For example, the state of Wyoming has taken the lead in regulating blockchain and cryptoassets by passing a dozen laws specifically related to how these technologies can be integrated into the existing financial and legal framework. Regardless of whether or not this approach would work at the national level, the essential is missing; the most difficult work around regulation and policy has already been tackled. At this point, it is simply up to policy makers to 1) educate themselves and learn about issues related to the sector, and 2) be prepared to experiment and engage with private sector actors to move forward. this conversation.

Regulate, do not dictate. An increasingly common trend among regulators around the world is to regulate and attempt to set the rules of the market through edicts and enforcement actions rather than through solid analysis and conversation. Attractive in the short term, such an approach leads to a rigid, inflexible and ultimately fragile regulatory framework; strong and sustainable regulations require the input and dialogue of all interested market players.

Attempting to regulate the blockchain and cryptoasset space through edicts, lawsuits, and compliance-oriented activities will likely lead to the following result. Given the global and decentralized nature of blockchain and cryptoassets, the industry, associated organizations, and the capital that goes with it will likely move to jurisdictions more suited to its future growth. Order in Council regulation rarely works, and is unlikely to work in an industry as fluid and dynamic as crypto continues to be.

Opportunity versus threat. A common and ill-informed opinion that continues to permeate the regulatory conversation around blockchain and cryptoassets is that this technology poses an existential threat to the existing financial system and order. While it is true that these technologies represent a paradigm shifting technology in terms of how individuals and institutions will interact and engage with each other, this does not mean that these technologies are incompatible with the framework. current regulatory.

On the contrary, as stablecoins, central bank digital currencies, and other more centralized crypto-asset options enter the market, it is increasingly clear that crypto-assets are set to become a integral aspect of the financial system. Rather than seeing these innovations and strengths as a threat, they should be seen as an opportunity for further development.

Regulating a space like cryptoassets was never going to be an easy or short-term endeavor, and any individual or institution that declared it was either misinformed or deliberately spreading disinformation for ulterior motives. Blockchain and cryptoassets represent the biggest breakthrough in technological and financial innovation in decades, and it’s only natural that regulators have a lot of interest in the space. That said, just because a technology is new and innovation doesn’t mean regulation has to be onerous. Rather, policymakers and regulatory agencies should both be aware of the opportunity associated with crypto and be willing to set rules to help foster its future development.

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