There are many reasons to be optimistic about the future of cryptocurrency. This year, when Bitcoin passed its all-time high, PayPal introduced support for digital assets. A company listed on Nasdaq increased its Bitcoin balance sheet to $ 1.6 billion. and the first Bitcoin owner, Cynthia Lummis, reached the US Senate. Ethereum was also the first blockchain to transact $ 1 trillion in a single year. In short, it’s been a good year.
And yet despite all the unbridled determination, an 800-pound elephant remains in the crypto room: regulation. The regulatory headwinds not only caused Facebook’s stable Libra coin project to stall. They have also forced countless crypto companies to think about how they want to operate in the years to come. After the widely published DoJ accusations against the owners of the cryptocurrency trading exchange BitMEX in October, capital flowed not only from BitMEX, but also from OKEx, Huobi and Binance.
This crypto flight into safety should give budding Bitcoin buyers food for thought – and think twice before trading on unregulated exchanges.
The regulators are starting to circle
Regulators have been a step behind crypto for years, but that’s starting to change. Hence the latest powwow involving finance ministers and central bank governors from the USA, Canada, Japan, Great Britain, Germany, France, Italy, the European Commission and the Eurogroup. The topic discussed? How can stronger regulation be implemented in the digital asset ecosystem?
One thing we can be sure of: regulators are not going anywhere. The success of the crypto industry will only bolster the determination of global authorities to take steps that will prevent wrongdoing, protect users, and inevitably ensure that national governments get their piece of the pie.
Interestingly, the recent regulatory battle has centered on the validity of private crypto wallets, with U.S. regulators considering banning the use of non-custody wallets. In other words, the digital asset exchange is responsible for preventing users from being able to send money from their depot to a hardware wallet (offline). This move is already underway in Switzerland and Singapore, and in Korea and Japan regulators have made every effort to prevent local exchanges from supporting assets that facilitate private transactions. Earlier this month, France approved new measures to also prevent anonymous transactions.
Firms like the Financial Crimes Enforcement Network (FinCEN), the Financial Action Task Force (FATF) and the Securities and Exchange Commission (SEC), as well as blockchain-centric analytics firms like Chainalysis and CipherTrace, lay the foundations that will make or break the success or failure of not just crypto -Exchange, but determine the entire industry. When regulations torpedo leading crypto projects, user trust will inevitably be shaken.
Why unregulated exchanges are doomed to fail
All of this means that when interacting in space, crypto companies (and users themselves) need to consider regulatory risk, whether they are buying a privacy token, installing a self-hosted wallet, transacting on a peer-to-peer exchange, or actively trading in the markets. In this emerging landscape, it is becoming clear that unregulated exchanges and services – for example those that fail to enforce KYC / AML measures to prevent money laundering and other illegal activities – simply will not survive.
According to Todd Crosland, CEO of CoinZoom: “While the adoption of cryptocurrencies has come a long way, the simple fact is that digital assets are not trusted by the public – and this is largely due to a lack of control.”
“If more services were regulated, the reputation of the entire industry would benefit. Regulations can help reduce the number of frauds and thus reduce the suspicion of potential new users. “
If Crosland is correct, the benefits of having a fully compliant exchange like CoinZoom, Coinbase or Gemini in the US, or preferring a regulated stable coin like USDC should be obvious.
Cryptocurrency users should avoid unregulated offshore exchanges and read up on the evolving legislative picture. Crypto is an incredibly exciting industry that represents an impressive evolution in the traditional financial system. What has been missing so far is the appropriate legal framework. After years of indolence, everything that is rapidly changing now is changing and the days of nightly exchanges are numbered. Traders who value their crypto should move their assets elsewhere while they still can.