Crypto Ban proposed by the Bank for International Settlements as a regulatory approach

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Vladislav Sopov

Prohibit, contain, regulate: three approaches suggested by the BRI to prevent the 2022 collapse from happening again

Contents

Crypto Should Be Banned, Isolated Or Regulated, Says BRI Are CBDCs Real Alternatives To Banning Crypto?

The Bank for International Settlements (BIS), the global banking coordination body and “central bank of central banks”, has released a bulletin summarizing approaches to cryptocurrency regulation in 2023.

Crypto should be banned, isolated or regulated, says BRI

In its recent skeptical thesis Addressing the Risks in Crypto: Exposing the Options, the Bank for International Settlements (BIS) said that after the FTX/Alameda drama, regulators can no longer ignore crypto.

The recent turmoil in the crypto market highlights the urgency to tackle risk. There are different lines of policy action, including the issuance of central bank digital currencies to encourage healthy innovation. #BISBulletin #Crypto #CBDC #Regulation https://t.co/DnI4GXi35X pic.twitter.com/qVDPSWBBwC

Bank for International Settlements (@BIS_org) January 12, 2023

The authors opined that the collapse of FTX demonstrated that decentralization in crypto is often delusional: governance is concentrated in the majority of DeFis. As such, the industry is not yet ready to be fully self-sufficient.

The segment is exposed to many vulnerabilities from the TradFi sphere, while the specificities of crypto amplify the risks. So, leaving crypto without proper regulation is becoming increasingly dangerous for retail investors:

Several crypto business models have turned out to be real Ponzi schemes. These features, coupled with the huge information gap faced by clients, seriously compromise investor protection and market integrity.

BIS officers offer three models (“approaches”) for how states can handle crypto. First, they can ban cryptocurrencies altogether to eliminate all associated risks. This will protect investors from scams and significantly increase the stability of financial systems. However, crypto bans could be circumvented, not to mention conflict with the founding principles of society.

Then, regulators can isolate the crypto from TradFi (the “Contain” strategy). BIS experts admit that such isolation is impossible in 2023, when it will not better protect investors.

Are CBDCs Real Alternatives to Banning Crypto?

Finally, governments can regulate cryptos in a manner similar to traditional financial institutions. The “responsible actors” will benefit from adequate regulation. Meanwhile, the nature of the DeFi segment makes finding “benchmarks” (responsible persons or legal entities) a difficult task.

In conclusion, BIS experts mentioned a number of “alternatives” apart from Web3 that can be as fast and cheap as DeFi protocols. First, there are next-generation digital funds transfer frameworks such as SEPA in Europe or FedNow in the United States.

Additionally, governments can protect people from cryptocurrency risks by launching viable and easy-to-use Central Bank Digital Currencies (CBDCs). Thus, TradFi can adopt the most impressive elements of DeFi design, including programmability, composability, and tokenization.

As covered by U.Today previously, in the middle of the third quarter of 2022, the collapses of centralized crypto services Celsius, Voyager and Three Arrows Capital and the painful drop in Bitcoin (BTC) prices, BIS admitted that the worst “warnings of encryption” had materialized.

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