Budairomi - stock.adobe.com
Binance's recent decision to withdraw from Canada due to new regulatory requirements it may sound like another bad news about the battered cryptocurrency industry. But it is more than that, and it has implications well beyond the cryptocurrency sector: it shows how a lack of regulatory clarity continues to threaten the financial sector and innovation in general.
The threat of this lack of clarity became even more pronounced last week when the US Securities and Exchange Commission. defendant Binance and Coinbase for failing to register as exchanges, among other charges. But how are they listed on the stock market? coin base As he has pointed out, there was no clear path to registration, and the SEC even allowed him to go public, demonstrating a patchy and haphazard approach to regulation.
Regulatory clarity is essential to enable the level of innovation essential to build a thriving economy. If this is missing, innovation will go elsewhere. This is true not just for the crypto market, but for everything, including the broader financial sector and the growing AI industry.
Just weeks after Canada announced new guidelines for cryptocurrency exchanges, Binance founder, chang peng zhao, a Canadian citizen, said the requirements were too cumbersome and limiting for his exchange to continue offering its services there. Soon, Canadians will no longer be able to trade on the stock market, which sees daily turnover as worth more than $70 billion.
Canada is not the only one complaining about regulation creating an unstable environment for cryptocurrency companies. Instead of adopting a clear policy, even before the cases against Binance and Coinbase, regulators in the United States they have issued numerous conflicting regulatory proposals and have sued a growing number of crypto companies in recent months, leaving the industry in a legal gray area.
This leaves Canadians and most Americans with less financial freedom and access to innovative services than other countries, including in most of Europe, Asia and the Middle East. Leaving their populations with limited access to cryptocurrency trading and other services risks isolating them from other business opportunities as well and pushes local innovation abroad. In fact, two months ago, long before the SEC lawsuit, brayan armstrongCoinbase CEO had threatened to move his company to the UK due to regulatory uncertainty in the US when citizens are cut off from billions of dollars worth of financial markets and publicly traded companies threaten to moving abroad, there is clearly a problem. at home.
In addition to creating a lack of clarity around cryptocurrency trading, regulatory actions and threats in Canada and the United States have challenged the connections between cryptocurrency companies and banks. In Canada, there are hard limits about how much exposure banks and insurance companies can have to crypto assets. And in the United States, a series of incidents, including the one involving the FDIC allegedly require the buyers of the failed Signature Bank to remove all crypto customers, and the crypto assets are ultimately left out of the bank's sale to flag star bank, point to potential efforts to insulate the crypto industry from the mainstream banking and finance sector. Events like these have prompted some critics to accuse US financial regulators of engaging in Operation Choke Point 2.0similar to how the US Department of Justice took steps in the 2010s to limit access to the banking system for gun manufacturers, payday loan companies, and other legal but controversial industries.
Whether or not there is a coordinated effort to remove crypto from the financial sector, it is clear that this separation is occurring. And while today's victim may be cryptography, tomorrow's victims will be other innovations. Instead of fearing change and crushing alternative financial systems or services, regulators should set clear rules for them from the start, or just leave them alone. Spending more than a decade threatening strict regulation is not helpful and does not encourage innovation, to say the least.
Regulators would argue that they are looking out for the public interest. And it's true that parts of the crypto industry can unfortunately feel like the Wild West, with some high-profile players engaging in unethical and illegal behavior. But these players are in the minority, and much of the bad behavior, including FTX's spectacular crash, which resulted in $8 billion disappearing from investor accounts, could have been prevented simply by enforcing existing laws.
Protecting consumers from fraud is really important, but this can largely be done based on existing laws. It doesn't really matter if crypto is a security or a commodity (a debate that has continued for over a decade, leaving open the question of which regulatory agency has jurisdiction in the space). It is also important that authorities draw a distinction between eliminating fraud or wrongdoing against consumers and enforcing regulatory standards. This distinction is missing in the lawsuit against Binance, in which the SEC brought charges of misuse of consumer money along with a violation of the regulatory framework, including failure to register as an exchange. Mixing these issues risks making regulation look like punishment rather than a well-developed framework for fostering responsible and prosperous businesses and services.
The fair and transparent application of existing laws creates the stability innovation needs to thrive while protecting consumers. This concept is relevant far beyond cryptography; in fact, when it comes to preventing people from using AI for nefarious purposes, simply enforcing existing anti-fraud and privacy laws would probably be enough, and would be much more efficient than creating special regulatory requirements for the industry.
New technologies will inevitably play an increasing role in the financial system and the broader economy, and regulators and other authorities must try to keep up; after all, that is his job. But instead of doing their job, they are constantly catching up with proposals and rules that should have been discussed a decade ago, creating more noise than productive action.
The government is limiting private innovation by not having a clear regulatory roadmap and gradually releasing new guidelines, creating chaos and uncertainty and forcing the best ideas to go elsewhere. This is happening now in fintech, but it could very likely be repeated in other sectors, such as AI, and is a threat to the supremacy of the US economy.
The fintech and alternative investment industry, which is becoming a bigger part of the broader financial system, must also do its part to offer real products and services, and not just hype or scams. The days of pretending until you make it are over, for the industry and regulators.
