Financial industry executives and lawmakers said this week at the Reuters NEXT conference that regulators must step in to protect crypto investors following the collapse of FTX, the latest call for tougher oversight of a volatile sector.
For years, policymakers have emphasized the need for effective crypto industry regulations, citing consumer risks following a string of major market crashes and corporate failures.
However, cryptocurrencies and related businesses are largely unregulated.
The European Union’s crypto regulations are set to go into effect in 2024, but the United States, in particular, still lacks overarching rules.
The failure of Sam Bankman-FTX Fried’s was the most significant in a string of major crypto-related failures this year. It sparked a cryptocurrency crash, leaving an estimated 1 million creditors facing billions of dollars in losses.
“The failure of something as significant as FTX simply demonstrates the importance of transparency, the importance of appropriate regulatory protection, and the importance of regulatory requirements for all financial activities,” said Laura Cha, chairman of Hong Kong Exchanges and Clearing.
According to Lynn Martin, President of the New York Stock Exchange, institutional investors are unlikely to embrace cryptocurrency without clearer rules.
“There was no regulatory framework,” Martin explained. “An institutional investor will not really dip their toe in a meaningful way in a market unless they understand what the regulatory framework is.”
These are concerns shared by some cryptocurrency investors.
“Regulators could have posted a lot more crypto guidance,” said Brian Fakhoury of crypto venture capital fund Mechanism Capital.
ARE REGULATORS CATCHING UP?
The crypto sector reached a high of nearly $3 trillion late last year, before market turmoil caused by rising interest rates and a string of industry collapses wiped out more than $2 trillion of its value. Bitcoin, the most valuable token, has fallen by three-quarters from its all-time high of $69,000.
This extreme volatility has not helped the cryptosphere gain broader support in the financial services industry.
“I don’t think it’s a fad or something that will go away, but I can’t put an intrinsic value on it,” Morgan Stanley (MS.N) CEO James Gorman told Reuters NEXT. “I don’t like investing in things with uncertain outcomes or putting clients in them.”
Following the demise of FTX, regulators in the United States, as well as executives from the finance industry and crypto entrepreneurs, have focused on the need for a workable set of rules and greater transparency.
Adena Friedman, CEO of Nasda has called for a regulatory balance between protection and innovation, echoing a common refrain among mainstream businesses involved in crypto.
Nasdaq, whose crypto custody arm is expected to launch in the first half of 2023, subject to regulatory approval, has long provided trading and surveillance technology to cryptocurrency exchanges.
“Now is the time for regulation to catch up and ensure that we have safety and soundness while also allowing for innovation and a nimble ecosystem as we move forward,” Friedman said.
The failure of FTX, according to India’s Finance Minister Nirmala Sitharaman, highlights the need for greater transparency on often-anonymous crypto transactions.
The FTX’s demise “”This demonstrates the importance of well-framed regulation,” Sitharaman said, “so that countries can be clearly aware of who is conducting these transactions and for what purpose.” Who benefits in the end?”
According to Justin Sun, a crypto entrepreneur, investors rarely have clarity on how funds at crypto companies are used.
“There is a lack of transparency for many exchanges, lending providers, and institutions in the space. Customers have no idea where their funds are being spent “Sun, the Tron cryptocurrency’s founder, stated
“Investors can lose their life savings in seconds,” he said, “but they have no idea where their money goes.”