According to a recent survey by Coinfirm, only 14% of the world's 216 cryptocurrency exchanges have regulatory approvals. Given the hacking, fraud, and market manipulation of cryptocurrency exchanges in many jurisdictions, such low regulatory coverage is not surprising.
Forbes believes that the statistics partially reflect the fact that regulators around the world are still studying how to regulate cryptocurrencies and related financial intermediaries. In the process, they will face many challenges:
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1. Make full use of financial innovation while reducing risks. Regulators and companies must work hard to understand each other's position in cooperating to develop regulatory standards, and implementing strict regulatory policies on exchanges may shift them to jurisdictions with loose regulations. This inconsistency occurs when governments in different countries apply different encryption definitions and adopt different encryption policies.
2. The cryptocurrency is blurred. At present, the differences between different types of cryptographic assets and their legal status are still ambiguous. The current securities law existed before the invention of digital currency. The US Securities and Exchange Commission used the Howey test method more than 70 years ago to determine whether an investment token is a security. However, some SEC officials acknowledge that the top two cryptocurrency bitcoins and Ethereum are not securities.
3. A decentralized regulatory system. In addition to having multiple regulators at the federal level, the US financial system also puts some responsibilities down to the states. Timothy Massad, former chairman of the CFTC, said there is still a big gap between Congress and the regulatory issues surrounding encrypted assets. Massad wrote,
“All crypto asset trading websites should issue the same warning because the regulatory gap is wide and dangerous. The current situation is that fraud is widespread and investor protection is weak. This divide is caused by our fragmented regulatory system. Although a few The institution has certain jurisdiction, but no institution has sufficient power. The divide is in the most frequent trading activity."
4. Financial technology innovation. Financial technologies such as crypto assets are often not so mature and robust in the early stages of innovation, which should allow users to circumvent or internal control. In addition, an encrypted exchange may assume multiple functions and act as a market, broker, custodian or even an exclusive holder of an asset. This can lead to an increased risk of conflicting conflicts of interest. Compared to stocks and commodity exchanges, there is still insufficient third-party tools to regulate transactions or accounts.
This lack of regulation can cause the cryptocurrency market to pose a constant threat to market integrity and investor protection. In an article on July 25, 2019, Bloomberg Businessweek referred to the issue of cryptographic exchanges manipulating transactions. According to the author, “the main exchanges of traditional assets such as stocks are subject to strict regulation. But cryptocurrency exchanges do not have this, and investors cannot know whether the volume and price they see are true or not.” Former CFTC Chairman Gary Gensler pointed out The regulator’s focus is on protecting investors by preventing market manipulation.
Some states in the United States have taken the lead in digital asset regulation.
Caitlin Long of the Wyoming Blockchain Alliance mentioned that Wyoming has passed 13 blockchain-compliant laws and has established a regulatory framework for establishing direct property rights to ensure that those with cryptocurrencies are protected. Their focus is to protect consumers from the bankruptcy of exchanges or custodians.
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By Xiu MU
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