Andrew Kirillov, CFO at TradingView, discusses why he believes regulation is essential to the future success of cryptocurrency.
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To regulate cryptocurrency or not – that is the question challenging industry leaders, the Securities and Exchange Commission, and now Congress. With headlines about shady transactions and fraud poking holes in crypto’s legitimacy, as well as volatile prices, it’s no surprise the technology’s biggest players are meeting with regulators to repair crypto’s reputation.
In July, Nasdaq hosted a closed-door meeting in Chicago with representatives from traditional exchanges and crypto markets, which sources say served as an attempt to encourage the industry to legitimise digital currencies.
Then in September, crypto leaders took the discussion to Capitol Hill for a round table meeting, demanding answers to unsolved issues in regulation. As cryptocurrencies lose patience waiting for the SEC to clarify existing laws, they’re turning to Congress to define the blurred lines.
Although these recent meetings reveal an appetite for order and regulation, there is a case for keeping this technology out of regulators’ hands. Constraining a technology the industry created to revolutionise the status quo could potentially negate its purpose.
Founders built cryptocurrency to challenge the market and open new doors for risk takers who are willing to operate in a grey area. But all risks have consequences, and if crypto companies want any chance of engaging mainstream investors or reversing negative perceptions, they’re going to have to play by certain rules.
Advocates for regulation
So, across the industry, crypto leaders are starting to advocate for regulation. Nasdaq CEO Adena Friedman, a well-respected expert in finance, told Bloomberg, “I do believe that over time we’re going to find that there is really utility [in cryptocurrencies].” Under Friedman’s leadership, Nasdaq has built partnerships with other crypto exchanges to collaborate on issues brought on by a lack of governance.
Mike Lempres, chief policy officer at Coinbase, has argued that crypto exchanges and regulators are on the same side and need to work together to develop fair governance. He told CNBC, “We all want a fair and orderly markets, we want all the same things regulators do. It doesn’t have to be done in the same way it was done in the past, and we need to be open to that.”
Comments supporting regulation from big players like Nasdaq and Coinbase push crypto in the right direction, but they don’t solve its credibility problem alone. For the technology to become a universal currency that is embraced by all players in the market, it desperately needs tighter restrictions.
Call for clarity
But reputation isn’t the only thing crypto companies have to lose. Industry leaders argue the lack of regulation will have a “chilling effect” on US innovation, brought on by fear of misinterpreting the laws in place.
If the rules are unclear, regulators will force companies to walk on eggshells to avoid getting slammed with steep fines and penalties. Not only does this discourage transformative ideas, but it also incentivises founders to take their ventures outside the U.S to more crypto-friendly governments.
If the call for regulation is answered and crypto gains public acceptance, opportunities in the stock market will skyrocket. Take the recent news that the SEC is considering a Bitcoin futures ETF – a development that would allow investors to participate in the crypto market without the risk of directly possessing any coins.
Although it’s a decision that the SEC has mulled for months, if the coin-based ETF proposal is approved, analysts estimate a value of between $10 billion and $15 billion for the next several years, making it among the top 10 ETFs overall.
Repairing cryptocurrency’s reputation
Regulation also presents opportunities for players on the other side of the market – publicly traded companies. At the start of 2018, when Kodak launched its cryptocurrency venture, KODAKCoin, investors went into a frenzy, and its stock rose by more than 200 percent following the announcement.
Although this crypto gamble attracted investors in the short-term, as soon as bad press hit the company, investors pulled out of the risk and took their money elsewhere. Governance over crypto companies will help crypto partnerships progress beyond the initial stages, allowing crypto start-ups and developers to identify business opportunities that will raise their value in the market.
Despite increased talk of crypto regulation, developing the appropriate rules could take years, considering the potential impact crypto has on the markets. Experts don’t know what regulation will look like, but it’s likely that it will differ from how the SEC handles traditional currencies.
While it seems unfair to force the industry to wait on regulators to clarify the rules, updating standards and changing existing laws to reflect crypto securities are the best solutions to cleaning up the technology’s reputation.
The days of fighting for freedom in the crypto industry are over, and crypto purists would be better off dedicating their time and energy to developing their products while they wait for regulation. What should be a revolutionary technology has turned into an illegitimate actor, and, in an effort to control crypto’s damaged reputation, leaders need to stand up for more governance.
It’s the only way for the digital coin to earn a respectable name in the industry and make a lasting impact on the financial markets.
Internet of Business says: This opinion piece has been provided by TradingView, and not by our independent editorial team.