What’s Next In Crypto Regulation?

last week, the Securities and Exchanges Commission (SEC) announced its intent to begin regulating cryptocurrencies. SEC Chair Gary Gensler spoke about regulating crypto. What does this mean for the future of crypto? How would a digital dollar affect existing markets? Could regulation improve things? Let’s look at what’s next in crypto regulation and how it could affect you as an investor or entrepreneur.

The pending implications of an executive order

President Biden’s executive order, signed in early March 2022, tasked federal agencies with looking into crypto, potentially leading to a US digital dollar down the line. Creating such a currency could lead to an overhaul of current financial systems, but it depends on how the government implements it. Making a digital dollar could also hurt cryptocurrencies.

Presumably, the digital dollar would be accepted at most locations. Crypto adoption for businesses is growing but still far from being available everywhere. If potential investors in crypto decide the digital dollar meets their digital currency needs, crypto growth may become stunted. Others may confuse the two and assume the digital dollar is like other crypto tokens.

The SEC is getting involved now

This is likely to have a significant impact, and while SEC involvement might sound scary, it could be for the best. The SEC’s job is to protect investors, so it will want to ensure that companies and people can get accurate information about any cryptocurrency or token sale. That includes how much money has been raised and its prospects. It will also ensure that scammers don’t use ICOs to defraud potential investors. Most importantly, it will ensure that investors’ assets are protected against fraud.

SEC Chair Gary Gensler said he had directed the SEC to work in coordination with the Commodity Futures Trading Commission (CFTC) to regulate crypto. In his prepared address on Crypto Markets at Penn Law, Gensler said the focus is currently on regulating crypto exchange platforms and stablecoins.  We can’t be sure of what’s next in crypto regulation since cryptocurrencies are a different asset class from traditional securities. Gensler’s speech seemed hopeful because it focused on protecting investors, but until regulations are clear, we won’t know where crypto markets stand.

Could SEC involvement reduce crypto thefts?

One of the concerns Gensler addressed in his speech was cryptocurrency exchanges taking custody of investors’ assets. And, to his point, most of the greatest heists in crypto’s brief history have come from people with inside access to trading platforms. In layman’s terms, centralized exchanges like Coinbase or Robinhood hold the private keys to your online wallet. So while the assets may belong to you, the exchange ultimately still controls access to your wallet. 

On the one hand, many investors may not want to deal with the security concerns of safekeeping their private keys. On the other, it not being an option is a fault in crypto exchanges’ current way of operating. Investors should have the option of keeping custody of their crypto. Gensler’s concerns are valid when looking at the history of theft from within in the crypto world. Undoubtedly, this is an area where regulation could improve crypto’s current circumstances. 

Where does that leave us?

The blunt truth is, we don’t know. As an early-stage technology with a growing user base, crypto is still in constant change. We’re still learning and trying to understand where crypto can go next. Admittedly, regulations for crypto and the introduction of a digital dollar steers away from the early dream of a decentralized market.

At the same time, regulation throughout the market might be what’s missing for crypto to take the next step towards stabilizing.  2022 has been a “slow year” for crypto in that prices haven’t exploded as they did in 2021. While that may dampen the excitement many have for crypto, it could also be a sign of progress.

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