For investors and consumers, cryptocurrencies are a potential asset class, but their innovation is stifled by a lack of adequate regulation. The use of cryptocurrencies is spreading across all industries. Crypto is genuinely impossible to ignore given the massive entry of traditional financial institutions, including banks, insurance firms, investment funds, and more. So, how to regulate cryptocurrency in the best way?
To regulate cryptocurrency, there are three options. The first is to regulate it less, but given its rapid expansion and growing interaction with conventional financial markets, regulators are unlikely to find that approach viable.
Another approach is to oversee industry regulation without much input or collaboration from honest crypto-related businesses. This approach might be risky and risk sacrificing the blockchain's potential as a great financial breakthrough for good.
The third option, which is the only one that is in our opinion actually possible, is regulation that calls for a continuing collaboration with the sector. Many in the cryptocurrency sector already believe that this kind of proactive, innovation-focused regulation will significantly improve the sector.
As a link between DeFi and regulation, CeFi
Our theory is that regulators engaging with sincere participants in the cryptocurrency field who want to actively interact with them will result in the most fruitful legislation. What does that relationship entail? Taking proactive measures to work within the current regulatory frameworks is one aspect of it, as it helps businesses better identify where gaps and friction still exist.
In the case of the aforementioned DeFi, there are ways to initially lessen this cost despite the fact that it creates new regulatory issues. Companies that specialize in centralized finance (CeFi) can act as a bridge between the traditional financial industry and the regulatory system that surrounds it on the one hand, and the decentralized finance sector on the other.
In order to expand their offering and make it available to their users in a way that complies with the in force regulations, they can also rely on established Know Your Customer (KYC)/Anti-Money Laundering (AML) procedures set forth by the Financial Action Task Force (FATF) as well as fiat on- and off-ramps.
Regulators' top worries and how the business may assist
If one part of being a committed partner to regulators is seeking to work within existing frameworks first, another part is having a perspective on key areas of legitimate concern for regulators, so they can work with industry rather than against it to come up with solutions.
The value of cryptocurrency fluctuates. Volatility is here to stay even though it is on the decline. I'll tell you this as a capital markets student and a follower of Benoit Mandelbrot: Volatility tends to breed additional volatility, or to cluster. The prospect of multiple X returns on their original investments is what draws many people to the field. Volatility, of course, operates both ways. Bitcoin can increase by 15 times in a year, but it can also decrease by 30% in a matter of hours. Each bull cycle includes such jarring, harsh corrections. But as the March 2020 disaster showed, those corrections typically come before longer legs.
The regulation of the future
The next Google, Amazon, Facebook, or Apple will without a doubt emerge from the cryptocurrency sector. However, the cryptocurrency industry must continue on its path to maturity if it is to maintain and surpass its present market size of $2 trillion.
For this reason, both as innovators and as institutions with licenses, we welcome open discussion with all significant players in the regulatory process, which will hopefully result in laws that are crystal clear regarding how businesses should be organized. Having clear guidelines and regulatory clarity is advantageous to all parties concerned, including regulatory agencies, companies, and retail customers. Similar to how the United States embraced the internet in the early 2000s, this will result in sustainability, innovation, financial security, consumer protection, strong AML practices, and ultimately greater money for the countries that choose to accept cryptocurrency.
