During the past two years, in which US regulators naturally shifted their attention to the global pandemic, the whole issue of cryptocurrency regulation was naturally left behind. It is no secret that many in the industry benefited from that, but now it seems that the party is over. There is increased pressure to set things straight in this relatively uncontrolled sector – and cryptocurrency prices are quick to react to voices calling for control.
Even now, at the beginning of June 2022, the future is clouded with uncertainty and it’s difficult to tell if and when a framework for crypto will be put in place. The push for regulation is gaining traction once again on the back of enhanced volatility.
Feedback from the SEC
SEC’s Hester Pierce recently talked about this issue, saying that “the US has dropped the ball on crypto regulation”, and highlighting the fact that there is still fraud in the industry, preventing its healthy development.
Those who wish to operate in line with high standards when it comes to crypto are the most vulnerable, since if legislation is imposed – and no one knows yet what exactly it will include – their business models are at risk of becoming unsustainable. The lack of predictability is pushing many crypto-related businesses to take their business elsewhere outside of the States, where there’s already a framework in place, but since the USA is the world’s financial center, whatever happens here will certainly affect the rest of the globe.
Crypto dropped – focus on regulation returns
The call for cryptocurrency regulation is becoming louder, as the market is hit with a selling frenzy. Bitcoin dropped below $27,000 and leading altcoins posted even larger losses. Those who are just now learning how to trade cryptocurrencies are faced with volatile conditions. Whilst some brokers like easyMarkets seek to alleviate this with risk management tools like free guaranteed stop loss and no slippage, the overall uncertainty is keeping new entrants away from the market and leaving it in bearish hands.
Perhaps the biggest surprise came from stablecoins, which are digital tokens pegged to fiat currencies like the US Dollar. Even these tokens were under pressure as crypto holders liquidated their market exposure. The Terra project, for example, went bust after its token dropped from above $100 to 0 in less than two weeks.
Stablecoins should have had reserves in fiat backing the outstanding tokens, and the fact that cryptos pegged to fiat failed shows that this was neglected – and the lack of regulation could be one of the reasons for this default.
California – one of the first states to act?
Positive news recently came out of California, the biggest US state by GDP, which formally began examining how to broadly adapt to crypto and blockchain-related innovations. An executive order was signed by Governor Gavin Newsom, requiring state agencies to move in tandem with the federal government and design regulations for digital assets.
This shows that the Golden State is aware of the potential in blockchain solutions, not just related to crypto. According to Newsom, this executive order is a big step closer to making the state the first to “establish a comprehensive regulatory and business environment for crypto assets”. Work still needs to be done on the implementation side, but this is certainly a sign that the regulation is meant to set an environment where crypto can flourish.