To see eye-to-eye? Crypto industry should start embracing regulation

Now it’s up to the crypto industry itself to start engaging with and accepting regulations.

Since the exuberant crypto bull run of 2017, regulators have increased their activity in the industry. United States governing bodies such as the Securities and Exchange Commission, the Department of Justice and the Commodity Futures Trading Commission have all pursued various types of legal enforcement. 

From December 2020, there has been an even further regulatory push, including a proposal from the Financial Crimes Enforcement Network aimed at heightened crypto wallet overwatch. What do crypto industry players think of regulation at present?

Dean Steinbeck, co-founder of Horizen Labs, told Cointelegraph that, indeed, in conjunction with increasing institutional involvement, “notices from entities such as the SEC, OCC, IRS and FinCEN have become more regular.” He added: “Over the recent few months, we’ve continued seeing an increase in institutional adoption of Bitcoin/cryptocurrency slowly but surely closing the educational gap between traditional and decentralized finance.”

Regulatory waters remain murky

Over the course of 2020, a number of sizable mainstream entities and individuals, including MicroStrategy, MassMutual, Square and Paul Tudor Jones, unveiled their large purchases of Bitcoin. In 2019 and 2020, U.S. regulators increased their activity in the space, both in terms of enforcement as well as clarity.

“However, these notices and regulations are often convoluted and unclear, which, in turn, makes them meaningless and misguided in the eyes of the crypto community,” Steinbeck said, adding:

“What is preventing the creation of transparent and fair regulation? Those drafting these regulations do not interact with crypto on a day-to-day basis. If we can change the system in which these notices, rules and policies are created, the community may be more receptive to proposed regulations being put into place.”

The past two years or so have yielded a number of regulatory actions. The Office of the Comptroller of the Currency gave national banks the go-ahead for crypto custody. The Internal Revenue Service attempted to issue clarity on taxes, although the agency’s effort added confusion in the process. The IRS also added a question about digital asset ownership to its tax reporting forms.

More recently, the CFTC and DoJ went after crypto derivatives exchanges BitMEX, the SEC filed a suit against Ripple, claiming its XRP asset as a security, and FinCEN proposed a rule to monitor the flow of funds to self-custodied crypto wallets, as well as between platforms.

“As an industry, we’ve come a long way but, in the same vein, are just getting started,” Konstantin Richter, founder and CEO of Blockdaemon, told Cointelegraph when asked about his thoughts on the current crypto regulatory scene, adding: “This past year, crypto regulators seemed to be moving faster and asking better questions — not easier questions per se.”

Richter noted a present opportunity to guide governing bodies in learning more about the industry. He added:

“I think we are collectively in a position to put our best foot forward to encourage and inform regulators on the best ways for them to be partners in innovation with the crypto industry at large and also enact more of the safeguards and standards required for continued institutional and mainstream adoption.”

In terms of educated government rule, President Joe Biden’s pick for SEC chairman, Gary Gensler, will likely bring a wealth of crypto knowledge into his position. Gensler taught a course on crypto and blockchain at the Massachusetts Institute of Technology’s Sloan School of Management. Recent Cointelegraph reporting reveals Gensler’s immense knowledge of the industry.

Digital asset regulation is not a foreign concept

“Crypto regulation has always been an important topic, with news or even just rumors causing major price fluctuations in the past,” Philip Salter, head of mining operations for Genesis Mining, told Cointelegraph.

Regulation has increased in line with crypto’s growth as an asset class. Part of its departure from a regulatory gray area can include government agencies fielding comments from the sector. Industry participants, for example, flooded FinCEN with comments recently on the governing body’s proposed crypto wallet regulation.

“We are seeing a much more open and knowledgeable discussion on crypto regulation lately,” Salter said. “The big new topic seems to be if KYC is required for personal wallets and coin holdings,” he explained, adding:

“This would have major implications and possibly cause some panic if enacted in the U.S. I think, generally, it’s the best not to worry too much about the short-term rumors and regulations but, instead, to take a step back and acknowledge that it will take years to reach a final conclusion on crypto regulation. We are talking about a financial revolution here, there will surely be battles.”

Erik Finman, an early crypto buyer who became a millionaire via his Bitcoin investments, sees regulation as a long-standing point of importance. “Regulation has always been the greatest challenge to cryptocurrency, and I think there’s been a bit of a pause with some of the political turbulence focusing on other things,” Finman told Cointelegraph, adding:

“Under the new administration, cryptocurrency advocates will need to do their best to work with the government to create win-win scenarios.”

As the U.S. continues firming up its government’s roles after a presidential changeover on Jan. 20, 2021, the atmosphere around crypto regulation remains to be seen. Gensler as the SEC’s chairman will bring a wealth of crypto knowledge to the commission, which could pave the way for educated regulation.

Janet Yellen, the president’s Treasury Secretary choice, however, worries about crypto’s role in criminal transactions, as per her recent comments. Meanwhile, the industry awaits new developments on FinCEN’s wallet regulation proposal, for which the agency recently extended the comment period.