The fall of FTX was just the latest calamity to hit the crypto world — and it caused a cascade closures, bankruptcyand losses for individual and institutional merchants, government, and companies that used crypto for financing and trading. Crypto he fell before and he returned – but this time, losses it can be too big in order for trading to return to “normal”.
The big reaction among governments and traditional financial watchdogs was to call for regulations on what was a free, open trading market.
Among those calling for regulations is US Treasury Secretary Janet Yellen, who “remains quite skeptical” of cryptocurrency in general. “I think everything we’ve experienced in the last few weeks, and also earlier, says that this is an industry that really needs to be properly regulated,” she said. Currently, the industry does not have the regulations needed to protect advisers — but plans are being made to create one, Yellen told reporters.
Yellen’s statement was nothing new; for years governments have said they will regulate crypto. But they didn’t do much. Yellen’s speech was more of the same speech. It is time for the crypto industry itself to take up the challenge and adopt its own regulatory framework.
What is needed is a massive gathering of all those who care about a free decentralized financial system — platforms, miners, investment firms, and even individual investors — to brainstorm ideas on how the industry could be regulated. The rules should, of course, be enforced, and the assembly would have to determine who would be in charge of that enforcement.
One idea would be to hire top accounting and management firms — those that oversee and audit private and even state lotteries. Among the requirements that these supervisors can make is a proof of reserves rule, ensuring that the cryptocurrency held or stored by the organization or platform is backed by “tangible” assets.
Freedom of trade — and private trading — is truly the “secret sauce” of cryptocurrency and opposes the ever-increasing regulation of the economy that gatekeepers advocate. Additionally, some regulations or at least industry standards are needed. The steps should ensure basic rights, such as ensuring that retail investors are not defrauded. And recent events in the crypto world make it clear that some light regulation is needed – at least to the extent of protecting investors.
In addition to ensuring that accounts and platforms follow the rules it has established, the regulatory body will need to develop best practices and methods to deal with stress, investor panic and rapid changes in the value of cryptocurrencies. Part of those best practices could even include recommendations to develop advanced algorithmic trading tools that, for example, stop a trade when prices break out of a given range, essentially closing the trade while the market absorbs the situation and recovers.
If the industry takes this huge but important mission into its own hands, regulations will not only materialize more quickly, but will also be appropriate for crypto’s core ethos. The regulations that governments are likely to have in mind – if they ever manage to enact them – are likely to cripple, if not completely undermine, the things that attract people to cryptocurrencies in the first place – anonymity, the freedom to trade with whomever they want in the way they want, and independence from of the FED cycle of growth and decline we are all subjected.
The “regulations” will likely turn cryptocurrencies into a “digital currency”, no different from the dollar – except it will be online, so it will be even easier for the government to track, without the need for a blockchain.
That would be a shame — because cryptocurrencies represent values that many people around the world aspire to. But if the regulations imposed on cryptocurrencies could reflect those values — ensuring that trading remains free while protecting investors and organizations from the kinds of excesses that FTX and others have been guilty of — then those values could be preserved.
The current scandal is disappointing to say the least, and the bad actors clearly need to be rooted out. Proponents of cryptocurrency must constantly let potential investors know that they are dealing with a high-risk and often volatile asset; and must use advanced technology to ensure the protection of their investors. But we must remember that the industry is much broader than these bad actors — and that the ideas, principles, and ideals that emerge from crypto will, without a doubt, have a huge impact on our freedoms. If we as an industry are serious about our future, we must act now to develop a regulatory framework.