The year 2022 is drawing to a close and could be one of the busiest for the cryptocurrency industry., due to the prolonged winter that has wiped out more than 70% of the market capitalization and the barrage of cryptocurrency companies that have imploded. This was mainly due to internal mismanagement and unchecked decision making process.
Among all the ups and downs, one thing has become clear: retail customers have lost a significant amount of money due to a lack of regulatory oversight.
Although US lawmakers have promised numerous times this year to bring cryptocurrencies under the scrutiny of regulators, after every big crash of cryptocurrency-related companies like Terra and FTX, we see another round of regulatory debates without any concrete action.
The role of regulators has been heavily scrutinized following the collapse of FTX due to the close ties between former CEO Sam Bankman Fried and policy makers. Some reports indicate that eight congressmen, five of whom received donations from FTX, tried to stop the Securities and Exchange Commission (SEC) from investigating FTX.
Breaking: 8 Congress Members tried to stop the SEC from inquiring into FTX by questioning the SEC’s authority to inquire about Crypto
5 of those 8 members also received campaign donations from FTX, ranging from $2,900 to $11,600
— Nancy Pelosi Stock Tracker ♟ (@PelosiTracker_) November 25, 2022
Newsflash: 8 members of Congress tried to block the SEC from investigating FTX by questioning the authority of the SEC to investigate cryptocurrencies.
5 of those 8 members also received campaign donations from FTX, ranging from $2,900 to $11,600.
Coinbase CEO Brian Armstrong was not very pleased with the failure of regulators to prevent another contagion, saying that enforcement measures against US-based companies for wrongdoing by an offshore cryptocurrency exchange make no sense.
Armstrong also blamed the SEC for failing to come up with a rule on time.which has caused almost 95% of trading activities to have moved to foreign exchanges.
https://t.co/0HxlRiI6Sy was an offshore exchange not regulated by the SEC.
The problem is that the SEC failed to create regulatory clarity here in the US, so many American investors (and 95% of trading activity) went offshore.
Punishing US companies for this makes no sense.
—Brian Armstrong (@brian_armstrong) November 10, 2022
It was a foreign exchange not regulated by the SEC.
The problem is that the SEC failed to create a clear regulation here in the US, so many US investors (and 95% of trading activity) moved abroad.
Punishing corporate America for it is pointless.
Jim Preissler, co-founder of decentralized exchange service provider SOMA.finance, explained that most do not fully understand the role of regulators like the SEC.
He told Cointelegraph that: “The SEC sets rules and guidelines. For example, the SEC has repeatedly made it clear that, apart from maybe bitcoin, they see all other cryptocurrency offerings as potential value. Violators face potential law enforcement and, in extreme cases, may turn to the Department of Justice to initiate criminal cases. Right now, the SEC has a huge backlog of infringers that it could go after. They’re still doing precedent-setting types of cases: initial coin offerings, influencers, exchanges, lending products, etc.”
“This will set the stage for future enforcement. As the SEC ramps up, we could see cases coming in even faster and more furiously.”
As Armstrong pointed out, The inability of regulators and policy makers to come up with clear regulation of cryptocurrencies has been a major driver of investors turning to offshore exchanges..
Preissler noted that the regulation already exists in the United States– Exchanges need to have a state-level money transfer license, a banking license to offer cryptocurrency, or an Alternative Trading System (ATS) registration with the SEC if they are offering blockchain-based securities.
He added that any other regulation could add to existing ones or potentially supplant them. However, “without one or both categories in the United States, an exchange would be in violation of existing regulations.”
Patrick Daugherty, a former SEC attorney, told Cointelegraph that “the SEC and the CFTC (Commodity Futures Trading Commission) have jurisdiction over token sales by or through non-US exchanges to US persons. Although the details vary depending on the specific platform or exchange, many US individuals are clients of non-US exchanges, giving US agencies jurisdiction over them“.
when asked why the SEC had not taken any timely action against foreign exchanges, Daugherty recommended a congressional hearing and explained that:
“These are questions that House and Senate committee members should ask in their oversight capacity. There is no effective private recourse against the SEC in a case like this. That’s what congressional oversight is for.” .
The CFTC and SEC have faced increased scrutiny following the collapse of cryptocurrency exchange FTX, as the exchange was pushing for the CFTC to become the main oversight commission for the cryptocurrency market. Republican lawmakers have accused the SEC chairman of coordinating with FTX “to obtain a regulatory monopoly”.
US regulators must put in place better safeguards
The regulatory process is lengthy due to the number of parties involved, and all legislation must pass through Congress before being enforced. Nevertheless, regulators, such as the SEC, can use court orders to develop policies that protect their investors. One such example is the ongoing case between the agency and Ripple executives. In this lawsuit, the SEC is using legal means to enforce the laws despite the lack of clear regulations around which crypto assets qualify as securities and which can be considered an asset.
David Kemmerer, CEO of crypto tax solutions provider CoinLedger, called for intergovernmental collaborations with tax havens to ensure that relevant laws are mutually respected. Also it is important that foreign exchanges only use authorized dealers.
He also said that regulators must promote safe and efficient markets, so US regulators can prevent investor exodus to offshore exchangesand commented to Cointelegraph that:
“There should also be equity investments from local companies to support innovative and cutting-edge technology. Regulators should also open up additional funds to protect investors from offshore exchanges, such as subsidized loans. Likewise, there should be less political interference and better taxation. favorable”.
In light of the cryptocurrency collapse, US regulators must put up barriers to safeguard investors while allowing domestic innovation to flourish.
Richard Mico, legal director at cryptocurrency solutions provider Banxa, told Cointelegraph that Establishing comprehensive cryptocurrency regulation is a long road, but there are obvious guidelines that prudential regulators can set and clarify to allow good players in the space to continue to innovate within the US, while holding others accountable. bad actors. He told Cointelegraph that:
“Regulation via enforcement should not be the primary way to oversee the sector. In the absence of a robust and uniform regulatory framework, proactive engagement of the sector and the creation of appropriate signals and guidance is critical.”
Mico also suggested cracking down on advertisers and promoters.stating that “although it is legally based in the Bahamas, the collapse of FTX.US harmed US citizens who invested in the platform. Cracking down on crypto influencer campaigns that lack proper disclaimers and/or disclosures (e.g. conflict of interest) is one way the SEC can protect consumers“.
US regulators have had an on-and-off relationship with cryptocurrencies. Since the FTX debacle, there is now a major call for more regulation. Richard Gardner, CEO of cryptocurrency infrastructure provider Modulus, believes that regulation should bring a mandate prohibiting the mixing of client assets and exchange assets. He cited the example of the European Union’s MiCA regulation, telling Cointelegraph that:
“It becomes much easier to argue that competent investors will see a real reduction in risk by using exchanges that are supervised by US and/or EU regulators. Beyond offshore exchanges, the risk extends to DeFi projects that they are borderless by design. Not only is there a monitoring issue, but there are security concerns as the vast majority of hacked assets in 2021 came from defi projects.”
He added that the lack of action by regulators has surely been a disservice to the cryptocurrency industry. Nevertheless, The person responsible for the FTX debacle is the exchange and its CEO, Sam Bankman-Fried. “It is easy and comfortable to pass the ball to the regulators, but what SBF has done is absolutely excessive. Regulators have certainly learned their own lesson from recent events and, in a perfect world, that will mean swift action by the incoming Congress,” Gardner said.
The FTX collapse has put regulators in the crosshairs for their inability to protect investors from losing money in the face of the collapse of yet another multibillion-dollar company. Looking ahead, It will be interesting to see how regulators and legislators address jurisdiction, competition and oversight issues in an effort to make the cryptocurrency ecosystem more stable..
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