Safeguarding the Cryptocurrency Ecosystem - Monash Lens [Advance Cash ]

Safeguarding The Cryptocurrency Ecosystem - Monash Lens

Labeled crypto winter, the cryptocurrency market went through a roller coaster last year. In 2021, riding the wave of the crypto frenzy, crypto industry poster boy Bitcoin reached an all-time high of US$65,000 in November 2021 but then dropped to a low of $15,869 US a year later.

The November 2022 collapse of cryptocurrency exchange FTX has caused yet another dent in the crypto industry, exposing vulnerability in the handling of cryptocurrencies and engagement with digital asset exchanges ( DAX).

Read more: How to lose a fortune in bitcoins

The irony is that FTX was no small player in the crypto market and was popular among investors, venture capitalists, politicians, and even in the regulatory space.

Its collapse sent a strong signal to crypto enthusiasts – if FTX can crash, all other DAX could be vulnerable.

In fact, FTX was the 11th in a series of crypto upheavals in 2022, and it continues to happen, with the March 2023 collapse of Miami and New York crypto Citycoins.

This will further undermine the trust of crypto enthusiasts and innovators, causing more DAX to lose customers and the trust they have built over the years.

On the positive side, the collapses have again woken up regulators, and better regulation is now on the way.

Regulators at the European Central Bank (ECB) and the Federal Reserve have long talked about the importance of strong regulation for the crypto market.

The ECB noted that crypto assets only make up around 1% of total global financial assets, which is even more than subprime mortgages. But if left unregulated, they can wreak havoc and potentially lead to financial stability risks.

To prevent this, the ECB has finalized the legislation, the Crypto-Asset Markets Regulation (MiCA), which is expected to come into force in 2024, and will harmonize the regulatory approach across the European Union (EU).

The Federal Reserve Board has also warned member banks that it intends to ban cryptocurrency banking activities to prevent banks from being exposed to crypto risk.

Regulators are not there to stifle crypto innovation, but rather to let it thrive in a protected ecosystem. In fact, Federal Reserve Board Vice Chairman Michael Barr noted that digital asset specialists are needed to "help us learn from new developments and ensure we're up to date on innovation in this industry." .

Regulators are taking careful steps to prevent crypto risk from being passed on to a larger part of the economy. For example, the Federal Reserve Board has warned member banks that it intends to presumptively ban much cryptocurrency banking activity.

The FRB prohibits member banks from holding most crypto assets. Banks wishing to use dollar tokens must prove certain security measures and receive formal approval before their use in banking transactions.

In the UK, NatWest and other major UK banks have imposed limits on the amount of money that can flow to and from crypto exchanges.

Crypto regulations can be ambiguous

The Securities and Exchange Commission (SEC) has warned major crypto exchange Coinbase for violating securities laws. Coinbase has already been approved by the same SEC to go public in 2021, after a thorough review of its operation.

Unfortunately, we have not seen unified crypto regulations emerge in the 13 years of its existence.

The challenge is to impose regulatory standards on the nature of crypto while creating a safe environment for crypto enthusiasts.

But regulators should be careful not to implement extreme solutions that discourage innovation, such as digital currency or tokens. More restrictions on banks dealing with cryptocurrency means it will be difficult for DAXes to protect customers' crypto holdings.

While at one end we want to make the crypto economy healthy, vibrant and secure, tighter regulations are also forcing crypto players to move from a regulated system to offshore locations, where to keep an eye on investing in crypto will be a challenge.

Read more: Australia is exploring a digital currency, or e-dollar, but its benefits seem minimal

The million dollar question is what will happen to the crypto industry next.

This will be the year of reset and regulation of the crypto industry. Regulators must make a unified and coordinated effort to protect the crypto ecosystem.

There is no doubt that crypto is here to stay, but with increased regulation it will be less volatile, less speculative, and more attractive as an alternative financial asset.

Regulations will prevent the FTX saga from happening again. There will be further innovations in the token market and a greater focus on stablecoins than cryptocurrencies. Not to mention that the hype around central bank digital currency (CBDC) is an offshoot of crypto technology.

DAXes will come under more scrutiny, making people hold on to their investments longer and bringing price stability to the market.

I expect Bitcoin to trade between US$25-30,000.

A few weeks ago, my prediction was half of that, but due to the recent banking turmoil, many investors and speculators would be keen to invest in crypto, giving a much-needed lasting lifeline to the industry.

Precise and progressive regulation will further polish the industry and pave the way for the crypto spring. Crypto players should improve transparency, build trust, reduce or remove bad actors, and implement robust risk management practices on crypto exchanges so that investors and regulators feel safe. screw the crypto economy.