Is there any meaning in regulating the cryptocurrency market?

The financial community is divided

The crypto market is in an era of great polarization in which there are those who believe it is a great idea and those who firmly believe it is one of the worst products ever introduced to the financial market.

To avoid this kind of exaggeration, perhaps the best thing we can do is understand what's going on in this market. The aim is to explore the potential risks of this market without, however, suffocating the opportunities, especially in terms of crypto innovation being introduced to the financial market. To do this, it will be necessary to ensure that the crypto market does not operate in "Wild West" conditions.

Many crypto users are suffering from the market today, not only in terms of the large financial losses recorded over the last long period of time and the financial stability consequences these losses have had but also in terms of the indirect long-term psychological consequences of health to all involved in this market. The high volatility and lack of knowledge about the crypto market destabilise and divide the financial community, which is still struggling to understand concepts like digitization and tokenization. For these concepts to make sense, the market must take concrete steps, and it must follow those steps very carefully.

The culture of regulations or no regulations

In the emerging digital financial environment, the protection of traders, investors and financial markets must be ensured. The big difference today compared to previous years is that crises can arise from digital financial products.

A big issue is that the scope of activity of digital products like crypto is global, as it can be offered from places with a culture of rules to places without a culture of awareness of the application of rules and regulations. This means that regulatory frameworks to protect investors in a region with a culture of rules and regulations are of little importance, as it is not possible for these rules to work if they are not applied on a global scale. Consequently, what is required is the implementation of a global regulatory framework where everyone respects the same rules in a common way.

Crypto is the future, but what is the future?

The crypto market, since its inception, has challenged the traditional regulated financial sector, a view that is still held today by many in the crypto market.

Some understand the value of crypto market regulation. However, many believe that Crypto represents the future and, without being able to adequately describe that future, they question central banks, their monetary policy and the regulatory framework they adopt.

The fact is that now the so-called blockchain revolution is taking place and what is extremely interesting is to see the dynamics of the intersection between traditional financial products that are regulated in the same way by regulators worldwide and markets and financial products that are not yet regulated worldwide such as cryptocurrencies, while it is claimed that represent the future of financial markets.

The distinction between good and bad cryptocurrencies

The good news is that as time goes on, the cryptocurrency market is being regulated; however, it is not yet regulated enough to be the market that will be able to achieve its goal, which seems to be to replace traditional currencies.

The truth is that not all cryptocurrencies are bad, however, not all cryptocurrencies are good, and to make the distinction between good and bad cryptocurrencies clear, it will be necessary to communicate how cryptocurrencies will lead us into the future where their supporters envision, and how this will be done in a market that has not yet been regulated to the extent its size requires.

A public debate between the new and the old generation

The next step is to have a considerable public debate between those who want to create the future and describe that future clearly, and those who agree that the crypto market should be part of a regulated framework.

The significant danger today is that there is a mismatch between the new generation and the older generation in the sense that the older generation, which is bound by rules and regulations, cannot see the vision of the new generation, perhaps because the new generation, has not yet managed to clearly articulate its vision beyond the facile assumption that everyone can quickly profit from the crypto market.

Crypto market crisis prevention and management

The big issue with cryptocurrencies is that the crypto market has grown without rules. In this regard, the critical question is, when a major crisis occurs in the crypto market - because at some point a major crisis will occur - who will be the one to provide the solutions to this crisis? The solutions will again be called upon by the traditional institutions of rules and regulatory frameworks, thus proving their great value.

In the crypto market, a regulatory framework is required as in the case of business activities around cross-border digital payments where regulated financial companies and banks are involved.

A sound process of regulatory requirements for the crypto market could be divided into three steps:

• In the first step, for any crypto to be licensed, its operation and features must be easy to understand.

• The second is to be able to investigate whether it can be used for illegal activity, money laundering and terrorist financing.

• The third step is to be able to identify crypto users with the enhanced know-your-customer process.

The real meaning of the regulatory framework in the crypto market

Regulators will be called upon to play the role so that people understand this technology in a degree of detail so that they can discern the good crypto actors.

Regulators are not there to punish but to deal with those who make mistakes or guide market participants when things go wrong, or to set limits when market participants are so excited about developing innovations that they do not believe they should be limited.

The point is that in the markets, things can go in the wrong direction until, at some point, it is discovered that it is indeed going wrong. When the misdirection is discovered, everyone comes to the regulators, and they find that regulators either failed to regulate the market effectively or that the regulators caught the misdirection early enough to be avoided catastrophic consequences.

Regulatory authorities should have the opportunity to regulate the cryptocurrency market in order to avoid anomalies and mistakes that could lead to disastrous consequences and thus protect the future of the crypto market. The new generation that challenges the regulatory authorities deserves to give the regulators that chance. Because without rules, the crypto market risks sailing into uncharted seas on a journey without a compass. And since the crypto market without a compass will never be able to chart a steady course, it will never be able to convince a critical mass of market participants to follow it, no matter how exciting that journey seems.