Regulators fear a repeat of the Bitcoin crash in 2017

Regulators fear a repeat of the Bitcoin crash in 2017

Even if the risks in the cryptocurrency market subside, regulators are determined not to have the 2017 crash repeated.

According to Bloomberg, Brian Armstrong – owner of Coinbase Global Inc. – has long believed that the adoption of cryptocurrencies like Bitcoin is a “straight path to progress.”

But the SEC threat to Coinbase shows that things are not as simple as he thought. The US regulator announced it would sue the company if it launched an interest-bearing loan product called Lend.

SEK that Lend must comply with securities regulations. This makes the company less profitable.

Even as the risks in the cryptocurrency market subside, regulators are determined not to let the lessons learned from the Bitcoin crash in 2017 be forgotten.

Lessons from Fall 2017

In response, leading companies in the crypto industry criticized the watchdog for stifling innovation and being too jealous of users.

During the previous boom in cryptocurrencies, SEK came relatively late. At the time the head SEK says most ICOs (Initial Coin Offerings) are like unregistered securities, the crypto bubble has started to burst.

The market crash in 2017-2018 had little impact on the financial system. However, to date the managing authorities have not solved all the problems.

September 8th SEK Filed a claim for an ICO value 18th Million dollars in 2017. The US regulator argued that the ICO was in fact an unregistered security offering.

“That lesson haunted regulators. If they ignore the crypto market, the next drop could leave a much bigger scar than it did in 2017, ”writer Lionel Laurent wrote on Bloomberg.

The price of Bitcoin and other cryptocurrencies remains volatile. On September 7, Bitcoin fell nearly 19% in less than a day.

The crypto boom has increased total market capitalization 2,000 yen Billion USD. Other types of speculation are also encouraged, such as the DeFi (decentralized finance) and NFT (non-fungible tokens) markets.

Regulators are paying more attention to cryptocurrencies. But the risk in the market also increases. A recent Wharton School WEF report highlights counterparty risk and financial crime. Ciphertrace records attacks that cost up to 361 Million dollars this year alone.

“Cryptocurrency is the new underground bank,” criticized US Senator Elizabeth Warren. “They offer the same services without the user protection or financial stability of the traditional system,” she added.

“They turn straw into gold,” commented Ms. Warren.

Legal compliance model

According to Bloomberg, Coinbase’s plans may have nothing to do with the ICO. The problem, however, was that Mr. Armstrong was too ostentatious about a crypto loan app.

Observers say this program is no different from a coupon bond (a type of coupon that pays periodic interest) or a dividend stock, that is, a security.

The challenge going forward is whether regulators can avoid having to keep tracking the crypto industry all the time. Because in this industry, technology always goes beyond monitoring.

The European Union (EU) is developing a set of rules that monitor stablecoins and require trading platforms to introduce capital requirements. However, according to Hubert de Vauplane from the law firm Kramer Levin, the EU rules may be out of date by the time they are passed.

The total capitalization of the stablecoin market has rocketed from 3.3 Billion USD in January 2019 upwards 117 Billion USD These are cryptocurrencies that are linked to currencies such as USD or EUR.

Bloomberg notes that a global raid could be imminent. For example, the Binance cryptocurrency exchange was affected by government warnings to Japan from Canada. This shows that the world is ready to adopt a more lawful business model.

“The SEC won’t act in days or weeks, but in months and even years,” said attorney Carol Van Cleef.

“Regulators are demanding more resources to control the bad actors of cryptocurrencies, so the prospect of a cryptocurrency centered around Coinbase will diminish a little further,” she added.

Thao Phuong

ZING