It’s been a looming question for some time now. As the crypto industry has grown, how can governments step in and regulate it? Does it need to happen? Overstepping, as we’ve seen in China, can strangle a growing crypto market. Leaving everyone to do as they please can leave the consumer out in the cold and at risk. Recent endeavors by thought leaders in the crypto exchange space may lead to regulations that benefit companies and consumers alike.
Electroneum CEO Richard Ells and his team realised and decided ETN would be the first cryptocurrency to become KYC and AML compliant in 2018.
The History of Crypto Regulation Until Now
Eelctronuem was one of the first companies in the crypto space to move towards compliance with IRL regulation, announcing that they were KYC and AML compliant. This first effort by a crypto exchange to meet regulators on common ground didn’t create much momentum, as world governments still viewed crypto as no risk to global markets.
The Mt. Gox hack in 2016 turned the tide in Japan at least, causing the Japanese government to become the first country to introduce crypto regulations. Since then, there has been an epidemic of overregulation, with countries such as China, Colombia, Iran, and Algeria prohibiting cryptocurrencies. This overcorrection has led to hesitancy in some sectors when it comes to encouraging regulation.
A More Balanced Approach
There are recent developments on the regulation front that may create a healthy balance for this rapidly expanding space in the U.S., which may serve as a blueprint for regulation to follow around the world.
Coinbase’s advocacy may stem directly from a recent conflict with the SEC. The Securities and Exchange Commission recently notified the organization that its pending release of a crypto lending product would be in violation of securities laws. In response, Coinbase had to cancel the release of this product. Experts have observed that the SEC may have stepped in because they view Coinbase’s lending product as a security similar to a stock.
The discussion of how to describe crypto products under the law has been a long and complex one. Coinbase is now advocating to federal officials, asking that they build a regulatory framework that more clearly defines crypto offerings. It is possible that this ask will center around whether or not offerings such as Coinbase’s lending product are in fact securities.
This is in keeping with Coinbase’s historical advocacy in the crypto space. The company served as a founding member of the Crypto Rating Council, which was established in 2019 to address the question of whether or not cryptocurrency products are the same as traditional securities. The Council created an Asset Rating scale rated from 1 to 5 that could grade crypto products as either fully resembling (5) or not resembling (1) a security. This tool was intended for use by those in the crypto space so that companies could self-evaluate their products.
Ideally, these questions will be resolved sooner rather than later, as the crypto space continues to grow at dramatic rates. Finding common ground when it comes to regulations will give crypto innovators a way to develop solutions safely, while also protecting the interests of governments and consumers.