IMF Recommends 5-Point Crypto Regulatory System

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As global influencers rubbed shoulders in Davos, the IMF issued recommendations for crypto to global regulators. Depending on who you ask, crypto regulation could harm the industry or open vast new markets to normal investors.

In a note released during the week, the International Monetary Fund wrote:

“In times of stress, we have seen market failures in stablecoins, crypto-focused hedge funds, and crypto exchanges, which in turn has raised serious concerns about market integrity and protection. users. And with growing and deepening ties to the core financial system, there could also be concerns about systemic risk and financial stability in the near future.

The IMF’s preferred approach to counter these concerns is to increase global regulation of crypto:

“Many of these concerns can be addressed by strengthening financial regulation and supervision and developing global standards that can be consistently implemented by national regulators.

The recommendations are:

1) License, register and authorize crypto asset providers. 2) Prohibiting crypto entities from performing multiple functions in a company that create conflicts of interest. 3) Apply strict banking-like regulations to stablecoin issuers. 4) Imposing clear requirements on traditional financial institutions for exposure or engagement with crypto. 5) Create a cohesive global approach to crypto regulation and oversight.

Posing a threat?

While it seems unlikely that the whole world can agree on crypto regulation, the possibility of a global regulatory regime seems stifling. After all, Bitcoin was invented in the first place to circumvent the global financial system.

In the opinion of the creators and early adopters of Bitcoin, it is the global financial system that has been contagious with a risk of spillover. Regulation did nothing to prevent a financial downturn much larger than the crypto winter from shocking global markets in 2008.

In fact, it’s even possible that financial regulation was behind the 2008 financial crisis. Central bank regulation of the money supply was accommodative in the years leading up to that. This encouraged rampant speculation in exotic instruments with borrowed money at low interest rates.

For the best or for the worst?

As the currency velocity of the economy turned and revalued every dollar based on the growing new supply of US dollars, the same thing happened on Wall Street that happened to Alameda-FTX. They were hanging on to all these assets that weren’t really worth what they said on paper.

A global regulatory regime with rigid, uniform rules crafted by committees could easily crush a project as big as Bitcoin before it has a chance to get off the ground.

Or perhaps just as easily inspire one and cede control to a peer-to-peer network governance ecosystem cobbled together ad hoc by developers, entrepreneurs, and the markets they serve.

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