The Future of Crypto: Regulation, Not Elimination

As per the recent headlines, the end of cryptocurrency is near. However, this is far from the truth. The crypto industry has witnessed fraud, meltdowns, and layoffs that led to the downfall of many companies. Yet, these unfortunate events were mainly due to the actions of these specific companies, not the industry as a whole.

The major players in the crypto arena once promised self-regulation, but the actions of many bad actors have snuffed out any hope of that happening. However, the remaining crypto players - those who are operating legitimate businesses - are still viewed as survivors, moving forward with little hope of thriving.

At present, the Securities and Exchange Commission (SEC), more influenced by narrative gravity than the broader view of the potential of blockchain technology, is regulating crypto aggressively through overreach and enforcement actions. There are better approaches than this.

Crypto’s Global Impact and the Need for Regulation

Crypto has become deeply entwined with numerous aspects of the global financial system. It is a foundational layer to the future of international commerce and banking, communication, and individual ownership. Hundreds of millions worldwide use crypto for various purposes and believe in its potential. However, the SEC’s inability to learn from the past and see how crypto is inevitably part of our future has put the U.S. behind the rest of the world regarding frontier technology.

The EU, U.K., Japan, Singapore, UAE, and even China have introduced or are introducing permanent regulatory frameworks for crypto. In stark contrast, the U.S. needs a coherent regulatory framework, leading to the industry moving offshore rapidly. A recent Electric Capital report showed that the U.S., once home to 42% of the world’s open-source blockchain developers in 2018, saw this number drop to 29% by 2022.

Coming to Terms With the Global Economy

It is unlikely that the U.S. will deviate from the global trend of regulating crypto, as it is a driving force of the global economy. Losing crypto to other world powers would be a significant risk. For example, if Google or Twitter were founded in China, the internet might look different today. The U.S. needs a fully regulated financial market, which contradicts the economic interdependence seen in other major economies. However, historically, the U.S. has handled frontier technologies thoughtfully, and we can expect the same to happen now. Several U.S. states have created permanent regulatory frameworks for digital assets, with California and New York even issuing BitLicenses, which further codify Web3 activity in the two largest state economies in the U.S.

Signs of a Clear Regulatory Framework

Although the U.S. federal government might be moving slower than ever, signs of a clear regulatory framework coming into place are beginning to emerge. Recent draft bills offer a pathway for digital assets that form as securities to be regulated as commodities eventually. Tokens provided as part of an investment contract would remain under the SEC’s jurisdiction, while those qualifying as commodities would be overseen by the Commodity Futures Trading Commission (CFTC).

“Predicting the death of crypto is a convenient but inaccurate narrative. The U.S. will get there. It always does. The industry will get stronger as meaningful regulations — not strong-arm enforcement — are implemented.”