Notwithstanding the growing popularity and acceptance of cryptocurrencies such as Bitcoin (BTC) as viable alternatives to traditional assets, the sector remains mostly unregulated for over 10 years.
The current circumstances in the market could potentially worsen the effects of regulatory frameworks merging as there will be increased risks for both the economy and investors, according to the former president of the New York Federal Reserve Bank, Bill Dudley, as per a Bloomberg opinion article released earlier this week.
Dudley argues that while the blockchain and cryptocurrency technologies have flaws, they also have some positive advantages: “It could create a better system for identity and privacy. It could help keep track — and verify the ownership — of goods sold internationally. It could vastly improve payments, making them available 24/7 to more people and at lower cost, particularly for the smaller, frequent transactions undertaken by migrant workers.”
Nonetheless, Dudley went on to say that “a desirable future for digital finance requires prudent regulation.” He condoned the executive order issued by Joe Biden, the President of the United States, but he still does not think that it is quite “enough to ensure that action is taken before the industry’s unfettered growth generates significant disruptions and losses.”
Given the lack of knowledge and a divided regulatory system that splits authority between the Federal Reserve, the Treasury Department, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and others, reform has been excruciatingly stagnant.
To begin resolving these issues, Dudley argues the Biden administration should properly transfer authority, regulators should engage more knowledgeable counsel, and cryptocurrency industry experts should join designated committees.
Dudley additionally said that “an iterative approach, in which they place emphasis more on their objectives – say, combating money laundering and protecting consumers and investors – than on the means by which those objectives are achieved. Set a clear goal and let the participants take the lead in figuring out how best to get there in practice.”
Lastly, Dudley cautioned against delaying the implementation of a coherent crypto regulatory infrastructure:
“The longer officials wait, the greater the risks to consumers, markets and the economy — and the greater the chances that large losses due to cybertheft or a market crash in crypto assets will force an innovation-killing crackdown. It’s thus in everyone’s best interest that the process start now.”
Although some governments are attempting to regulate cryptocurrencies, others have explicitly banned them, such as China, which furthered its cryptocurrency crackdown in December 2021 by focusing its target short videos about cryptocurrencies.