crypto regulation Over $90 billion worth of digital currencies are traded every day.
Despite being so large, analysts warn that mismanaging the industry could have macroeconomic consequences.
To regulate cryptocurrency effectively, piecemeal approaches must be replaced by a globally coordinated framework.
A few weeks ago, President Biden signed the long-anticipated Executive Order on Ensuring Responsible Development of Digital Assets,
Cryptocurrency’s potential is acknowledged in a high-profile way.
Through an Executive Order, the White House commits to participating in research about cryptocurrencies and collaborating with departments across government to develop a regulatory framework for digital assets.
Moreover, it outlines a “whole-of-government approach to addressing the risks and maximizing the potential benefits of digital assets.”
Steering Committee Member of the World Economic Forum’s Digital Currency Governance Consortium, Jeremy Alliare, stated that the Executive Order “sets out initiatives to explore and engage”
“We should engage in constructive problem solving around known risks associated with legacy financial systems and Web 3 technology.”
Allaire said the exploration will touch upon “privacy, security, financial inclusion, and global competitiveness” for the USD.
It’s inevitable that the White House will make a concerted effort to regulate the digital asset industry – given how large and growing this industry is.
Presently, there are 18,142 crypto-currencies, 460 crypto-exchanges, and the market cap of cryptocurrencies is $1.7 trillion. Cryptocurrencies worth $91 billion are traded every 24 hours, with Bitcoin or Ethereum being the most common.
Given the size of the industry and the upcoming regulatory push, now is a good time to assess the current regulatory status. Thus, it will become apparent that a global coordinated approach to regulation is needed.
crypto regulation of cryptocurrency is essential
The growing interconnectivity between the traditional financial system and the burgeoning crypto ecosystem raises concerns about spillover effects that could threaten systemic stability.
Cryptocurrency has long been thought of as a tool for diversification, but the tea leaves are now reading differently.
According to data released earlier this year by the International Monetary Fund (IMF), bitcoin and the S&P 500 have a correlation.
Stock market sentiment might spill over into the cryptocurrency market as a result of this.
Immediately following this analysis, the Financial Stability Board warned of implications for global financial stability if the current trajectory of growth of crypto-assets and their interconnection with these institutions continues.
Due to the many data gaps surrounding crypto-assets, a comprehensive macroeconomic impact assessment is still somewhat out of reach.
Furthermore, the underlying technology of cryptocurrencies allows cross-border transactions without requiring financial intermediaries to be involved.
Tokenization, decentralized finance, NFTs (non-fungible tokens), and decentralized autonomous organizations offer new applications and models that challenge traditional models defining who a “person” is, what is “value,” and how it can be transacted.
Several existing regulations pertaining to cross-border data flows, intellectual property rights, and capital controls seem to be at odds with this.
This could also create ambiguity in the taxation environment, as well as pose a host of other policy concerns.
Due to the potential implications of cryptocurrencies for global financial stability, as well as the unique nature of the underlying technology, it is important to prioritize regulatory discussions and decisions, both at a national and a global level.
Regulations as they stand at the moment
In the opinion of the World Economic Forum’s Global Future Council on Cryptocurrencies, there has been no international agreement on crypto
There is no coordinated regulation of cryptocurrencies, although international organizations are assessing risks and developing appropriate responses to the emergence of cryptocurrencies.
This growing trend is already on the radar of central banks and regulators around the world.
While they share a common objective – stabilizing monetary systems and fostering innovation and economic growth –
From China to El Salvador, different regulatory options are already being considered and implemented.
These countries appear to have similar objectives: protect consumers, prevent illicit financing, protect the integrity of the market, and promote innovation. However, their approaches differ.
Several jurisdictions, such as India, have amended existing laws, while others, such as Liechtenstein, have proposed new laws
Modelling. The EU and UAE appear to favour a different approach, which calls for the creation of entirely new regulators to oversee the industry.
While these differences offer opportunities for jurisdictional arbitrage, they also create uncertainty and an increased compliance burden for businesses in the sector.
Due to an absence of common standards and terminologies, this is exacerbated.
In order to achieve a truly global coordinated approach, countries and international organizations need to work together, leveraging best practices and learning from one another.
Additionally to risk assessments and establishing common standards, there is a pressing need for public-private collaboration in order to develop solutions that are fit for purpose and inclusive.
Towards the future
It is noteworthy that the White House has issued an Executive Order that enables cross-agency collaboration.
Regulation of crypto-assets will require a globally coordinated approach, encompassing international cooperation
The best way to protect consumers and prevent the misuse of cryptocurrencies is to make them economically optimal.
This goal is being pursued by the Forum’s Digital Currency Governance Consortium, which is composed of over 80 organizations from different sectors and geographies.
In its second phase of work, the committee examined the macroeconomic impacts of digital currencies and provided regulatory guidance
In addition, stakeholders continue to experiment with cryptocurrencies, stablecoins, and central bank-issued currencies.
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