For a time, the cryptocurrency market has embodied a new “Wild West” for traders. Characterised by mayhem and disorder, we’ve seen a gold rush from traders looking to strike lucky off the back of the meteoric rise of currencies such as Bitcoin – it has been a case of ‘get involved first, figure out what it is second’. This week Lawyer Monthly delves into the new and exciting world of crypto with some insight on regulation from Kerim Derhalli, Founder and CEO of Invstr.
Now, just like for the Wild West before it, the rule of law is approaching. With a July deadline set by the G20 for unified regulation of cryptocurrency and Philip Hammond, a new Sheriff in town, announcing the launch of a dedicated UK task force, all signs are pointing towards a new era for cryptocurrencies – one of regulation and risk management.
While this concerted drive towards regulation has been a long time coming, the implications are troubling for those familiar with the crypto market as it currently stands. On the one hand, more regulation could see a reduction in scams and more efficient markets, but on the other, is regulation a contradiction to cryptocurrency’s inherent appeal – a risky asset that sets itself apart from centralised government systems?
Firstly, let’s look at the positives. Without some degree of regulation scams, cyberattacks, and fraud will continue to threaten the stability of the cryptocurrency markets. While it is this inherent instability that has surely helped push cryptocurrencies to dizzying – and exciting – heights in the past, nobody wants duplicitous trading practices to go unpunished.
We’ve already seen the Securities and Exchange Commission (SEC) make its presence felt by clamping down on Initial Coin Offering (ICO) fraud, most notably with PlexCorps, and this sets a good precedent as the market evolves.
Paving the way for greater liquidity in the market and establishing clear operational structures will attract more institutional money. This will go some way towards negating the impact of market manipulation that causes the large daily or intra-day swings in price that make cryptocurrencies such a risky investment.
However, for the cryptocurrency market to maintain its identity, too much red tape could be fatal. Born in the shadow of the global financial crisis, Bitcoin and other digital assets are a direct challenge to the fiat currency system and its central banks, who still have some way to go to repair popular opinion of their practices. Cryptocurrencies represent a challenge to the financial system itself and this has been critical to their appeal.
The new generation of savers and investors are rightfully appalled by the massive fees that banks charge for moving money, a digital product, around the world. Or the unjustifiably high fees that asset and wealth managers charge for typically under-performing the market. New consumers and investors don’t trust the financial system and want to do it for themselves. Cryptocurrencies, alongside online investing platforms, are a way to do just that.
Innovation must also be encouraged to thrive across the industry. Blockchain is one of the key technologies that will drive the next economy, and new advances are being made in its application across a range of industries including banking, government, insurance, transportation to name a few.
Regardless of your stance on regulation, it’s encouraging at least to see that where regulators in other countries such as China, South Korea and Russia are cracking down on cryptocurrencies, authorities in the UK are prepared to work with the crypto community rather than clamping down on them.
Ultimately, it is crucial regulators find a happy medium: one that allows healthy regulation to be implemented and adhered to, but that does not stifle innovation, creativity and the unique qualities that have made cryptocurrencies such an exciting prospect.