There is never a good time for a crypto winter, but it would be hard to imagine a worse time than right now.
Even before 70% of the value of Bitcoin (BTC) evaporated seemingly overnight, things weren’t looking great in the court of public opinion. Negative sentiment was everywhere; a twitter Account documenting the crypto brothers taking it on the chin has racked up hundreds of thousands of followers. Now, the world’s largest crypto exchanges are laying off thousands of full-time employees, and the self-proclaimed “Cryptoqueen” has landed a spot on the US Federal Bureau of Investigation’s Ten Most Wanted Fugitives list for fraud. $4 investors. billion. Phew. The accusation rests.
It’s easy to dismiss crypto’s PR issues as being exactly that: an image issue. Looks aren’t everything. This is the domain of diamond hands, not wasteful spins. Leave the unbelievers behind. Either way, we were never going to convince die-hard detractors and incorrigible skeptics. (The problem with this mindset, reassuring though its reckless optimism, is that it always ends up advocating preaching to the choir as a viable strategy. It’s not. It never has.) summer.)
A faceless horde of diehard detractors and incorrigible skeptics have proven to be a useful front man since the early days of crypto. But upon closer examination and in the aftermath of the accident, the skeptics willing to bring us to heel are real people with real power, and they were watching us closely before that line fell, fell, down.
Related: Senator Lummis: My proposal with Senator Gillibrand allows the SEC to protect consumers
This is happening on both sides of the Atlantic. In Washington, crypto skepticism is increasingly the norm. Last September, Securities and Exchange Commission Chairman Gary Gensler compared stablecoins to “poker chips” and stressed the need for Congress to increase its regulatory powers over crypto. Co-sponsored by Senators Kirsten Gillibrand (D) and Cynthia Lummis (R), an expansive regulatory bill called the Responsible Financial Innovation Act arrived on June 7, removed from the decline that rocked the industry by days, and not per month. Another bipartisan proposal – led by Senators Debbie Stabenow (D) and John Boozman (R) – arrived in August.
From recessions to repressions
This bill is not a token gesture. He has bipartisan support, for one thing, in a government where bipartisan support for anything has been pretty much unheard of in recent years. The Commodity Futures Trading Commission, which Gillibrand helps oversee, would directly regulate crypto if (and likely when) the bill passes, reclassifying digital assets as commodities such as wheat or oil in the process.
Related: GameFi developers could face big fines and tough times
The 69-page bill is so large that it may need to be split up and phased in. Lummis, it should be mentioned, is not anti-crypto. She has actively invited crypto industry leaders to work with her on legislation, which bodes better for crypto as a whole than a push to simply enforce and extend existing SEC regulations.
The industry should accept this invitation. The Lummis-Gillibrand legislation – which is, quite frankly, preferable to the narrower Stabenow-Boozman bill – would give the CFTC exclusive jurisdiction over digital assets, except where the digital asset falls within the scope of regulation of securities. It should be noted that, thus far, the CFTC has performed much better than the SEC, which has been woefully inadequate in providing regulatory guidance, attempting to steer the industry through enforcement that, at times, borders on purely punitive.
The sooner we reach out, the better. Sensible regulation is not a bad thing for crypto, but hasty regulation might be. The fallout from this crash has the potential to create a sense of urgency among regulatory-minded lawmakers, compelling them to respond and correct with sweeping measures. From a regulatory perspective, the cold of this crypto winter and the inability of the market to protect investors in any way is proof that we cannot be on our own. Active and open cooperation would circumvent this.
Cause of cautious optimism?
We already know what scorched earth legislation looks like, i.e. there is precedent for an entire country simply banning wholesale crypto mining. This is unlikely to happen in the United States or the European Union, as decentralized finance (DeFi) and traditional financial markets are now highly entangled. In the most capitalistic terms, it would not be profitable for traditional investors and markets to get rid of crypto.
But crypto was never going to come out of this unscathed. The sense of urgency created by this year’s crash will likely hamper the potential for more measured and thoughtful regulations, individually tailored to the needs of crypto. If the crash hadn’t happened, lawmakers likely would have been more open to flexible, purpose-built measures.
It is now in danger. Calling crypto and DeFi a “potential risk to financial stability,” European Central Bank President Christine Lagarde is already pushing for a second, expanded version of the newly formally adopted Markets in Crypto Assets framework. Everything that was overlooked and left unanswered the first time, namely the staking and loan aspects, will not be missed a second time.
Related: Get ready for the feds to start charging NFT traders
But DeFi has become something of a scapegoat. He took the brunt of the blame after that stock market crash, and some of that blame was misplaced. Before the crash, centralized providers took excessive risks and were not transparent about how they invested customer funds. The Pure DeFi projects, where it was just a fully transparent smart contract on the blockchain, worked exactly as they were supposed to. As lawmakers on both sides of the pond seek regulation, now is the time to work with regulators to achieve balanced, sensible regulation and save DeFi in the process.
We can’t count on things to always work out in our favor. Fears that the European Parliament’s Transfer of Funds Regulation (TOFR) will take a hammer-on-scalpel approach to unhosted wallets and hamper the development of the machine economy have ended up being partially unfounded, at least for now. . While it effectively enshrined the idea that crypto transfers are riskier than other transfers, TOFR’s harsher measures have been diluted enough to keep non-hosted wallets afloat. In any case, the legislation targeting non-hosted wallets is now moved to the draft anti-money laundering regulations, where a more pragmatic approach is possible.
Related: Crypto developers should work with the SEC to find common ground
This is kind of good news. From a technology perspective, crypto and DeFi were not ready or able to meet the original version of the rules outlined in the TOFR. The adjustment has bought us time – something the cryptosphere won’t have if sweeping regulations are imposed quickly and without our input.
Maybe there’s no point in crying over spilled (frozen) milk. But this crash changed the game of regulation. I’m not trying to be a harbinger of doom here, but we have to be extremely proactive in approaching and working with lawmakers going forward. The regulatory timetable has accelerated. Now our technological development (as well as our ability to adapt and negotiate) must also be stepped up.
Dominik Schiener is co-founder and chairman of the Iota Foundation, which oversees one of the largest cryptocurrency ecosystems in the world. The foundation’s mission is to support the research and development of new distributed ledger technologies, including the Iota Tangle. Dominik oversees partnerships and the overall realization of the project’s vision towards the machine economy.
This article is for general informational purposes and is not intended to be and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.