What exactly can companies, traders and the general public do with cryptocurrency? Regulatory clarity determines that and much more.
The cryptocurrency boom is well and truly here. However, when it comes to using cryptocurrency, there is no clear way of determining what is okay to engage in and what isn’t. After all, cryptocurrency is constantly evolving and keeping pace with this change is no easy feat. Regulating cryptocurrency is important, and some government officials have been working towards building some sort of a framework. Still, due to the dynamic nature of the currency, there is a lack of regulatory clarity, and it is leaving investors and companies confused about what their approach should be.
Partner at Reed Smith LLP, Christine Parker, aptly noted during a hearing on crypto volatility, “One regulator says that a crypto asset is a currency. Another said that it is a security. And the outcome of that is incredibly harmful to retail customers.” According to her, this lack of regulatory clarity “stifles innovation in the U.S.” and drives retail customers to foreign exchanges. It is this confusion that is urging investors to seek regulatory clarity urgently.
So, why is regulation good for crypto?
As mentioned above, regulatory clarity is about ascertaining what a crypto asset is to investors or buyers. Is it a currency, a security or a commodity? What exactly can companies do with cryptocurrency? From paying their employees to investing in new businesses—businesses are demanding clarity on the scope of cryptocurrency today. Coinbase CEO, Brian Armstrong, summed it up, “My concern is that entrepreneurs and businesses have little visibility into what regulators expect of us. The positions regulators take often aren’t applied in ways that seem consistent or equitable.” Ripple CEO, Brad Garlinghouse, echoes this sentiment. He finds the lack of regulatory clarity “frustrating”. On the reason why it’s crucial to usher in clarity, he said, “I think at the end of the day, the industry should focus on utility. And [whether] these technologies [are] solving real problems for real customers.”
That cryptocurrency regulation is the need of the hour is evident, and in keeping with that, many countries have introduced laws pertaining to the topic. However, the scope of those laws is limited and traders require an all-encompassing set of rules to help them navigate the already volatile terrain.
How do we achieve regulatory clarity?
Some, like Armstrong, believe that to achieve regulatory clarity, the government needs to set up a new federal agency dedicated to digital currency. He expounded, “A new framework for how we regulate digital assets will ensure that innovation can occur in ways that are not hampered by the difficulty of transitioning from our legacy market structure.”
A WeForum report notes that regulation cannot be limited to a country or region alone. To truly achieve regulatory clarity, the report recommends working towards “cross-jurisdictional regulatory standards” to not only ensure a comprehensive regulatory framework but also the inclusivity of all users. After that, the report urges officials to create an international framework to standardize the use of crypto.
Some countries have shown a semblance of regulatory clarity. For instance, in the United Kingdom and Singapore, cryptocurrency has been categorized as “property”. In Canada, cryptocurrency is treated the same as commodities, and crypto investment firms are categorized as money service businesses (MSBs).
Is everyone in support of regulatory clarity?
Not really. While there is great demand for clarity by some, others believe that regulation goes against the very foundation of blockchain and cryptocurrency—independence. According to them, cryptocurrencies were designed to be free of intermediaries, thus creating a transparent money trading system. Some fear over-regulation of crypto, claiming that it would stunt the market’s growth and discourage investors from participating.
Still, increasing regulatory clarity is crucial as adoption of cryptocurrency grows. It is needed to empower companies and give them a clear idea on how they can conduct business with cryptocurrency. It is also integral to protecting investors from various cryptocurrency-related crimes. Only with regulatory clarity will we see new innovation in this space.
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