Over the past few years, the cryptocurrency market has been making headlines for all the wrong reasons. After a boom in cryptocurrency investing starting around 2017, some thought the crash was inevitable due to the bankruptcies of well-known cryptocurrency platforms FTX, BlockFi, and Voyager Digital. This upheaval in the cryptocurrency market has led both businesses and consumers to call for stricter regulation to address the scamcoin problem as well as prevent future collapses of similar platforms.
Scamcoin has been an issue among cryptocurrency investors since the emergence of the cryptocurrency itself. As the name suggests, scamcoins are fake cryptocurrencies created by developers to make a quick buck. Developers immediately disappear as soon as consumers begin to realize that they have been tricked.
Since its emergence, cryptocurrencies have felt akin to a “Wild West” approach to investing, with little oversight from federal regulators. Given the recent troubles in the cryptocurrency market and the ongoing scamcoin issue, many are calling for an end to the chaos and for regulators like the U.S. Securities and Exchange Commission (SEC) to intervene.
Aggressive supervisory support
When asked to begin regulating the cryptocurrency market, the SEC responded with a strong push, taking enforcement actions on 24 cryptocurrencies in the first half of 2023 alone. The agency backed this move with the argument that the regulations would prevent future fraud, market manipulation and fraudulent actors by forcing cryptocurrency providers to disclose more detailed information about cryptocurrencies to consumers and the market at large.
For many, stronger regulatory action enacted by the SEC has been a long time coming and may be overdue. “Regulatory oversight is important for consumers to safely invest in cryptocurrencies,” said Shane Rodgers of Singapore and US-based PDX Global Pte. Ltd.. “As far as we can see, very little safeguards are in place and this must change if the industry is to survive.”
Ethical cryptocurrency companies such as PDX Global, which offers the PDX Coin digital currency project, supports oversight by agencies such as the SEC. They argue that additional regulation will only help strengthen the cryptocurrency industry as a whole by working to weed out bad actors, scam coins, and misinformation that are weakening the entire cryptocurrency environment.
Cryptocurrency fraudsters swindled a record $14 billion from consumers and investors in 2021, before the SEC stepped up regulatory action. With so much hype surrounding the decentralized nature of the cryptocurrency market, many people have seen others making significant profits in the less regulated sector and wanted to get in on the action, no matter how unsafe it may be.
But now many consumers have seen first-hand how risky decentralized finance can be without proper regulation. As a result, they are willing to consider oversight by regulators to keep investments and activities within the cryptocurrency market safer.
Meaning of regulation
Since the cryptocurrency market is a “traitor” to the financial sector, the very idea of regulation may confuse or even anger some sectors of the market. By defining what regulation means, those who favor regulatory oversight can help steer markets and participants in that direction.
“There is a lot of confusion today about what is regulated. Will the agency regulate the cryptocurrency assets themselves, or the companies that build and manage them?” Rodgers was asked by FinTech Times.
Agencies like the SEC exist to regulate securities, so this also applies to regulated companies that build and manage cryptocurrency assets. The SEC will also be interested in regulating any cryptocurrency asset that seeks to prove that it can function as a currency. Other companies that offer tokens for other purposes, such as utility coins, may be better equipped to handle oversight, for example the Commodity Futures Trading Commission (CFTC) is another regulator.
No matter what regulations are proposed and which agency is chosen to provide oversight, it will be up to the cryptocurrency companies themselves to adhere to the guidelines for developing the cryptocurrency market. “PDX is run by a mature and experienced management team that takes a very conservative stance when it comes to regulation,” explains Rodgers. “We strongly believe that cryptocurrency regulation should be at the same level or higher than that of the securities and banking industries.”
Rodgers’ opinion is shared by many in the cryptocurrency world, but he is wary of regulation being too “one-size-fits-all.” The cryptocurrency industry’s preference seems to point to reasonable regulation that would help consumers avoid the pitfalls of fraud while maintaining access to cryptocurrencies.
The future of regulation
“I know we need guardrails and real laws, black and white regulations from Congress. This is good for the industry, accelerates financial growth and protects against fraud, tax evasion and money laundering,” Rodgers told FinTech Times.
The future of cryptocurrency regulation largely depends on the governing bodies themselves. Nonetheless, most in the industry agree that the necessary regulations are already here.
Other countries in Europe and Asia have found ways to regulate cryptocurrencies through approaches that do not stifle industry innovation. In fact, Singapore, which many see as a model for regulatory oversight, has seen an increase in consumers adopting cryptocurrencies as a form of currency.
Currently, regulation of the cryptocurrency space appears to be a patchwork of different ideas and approaches, as agencies like the SEC struggle to find ways to regulate this new money market. This disruption increases market volatility and causes people to stay away from the market out of fear. By looking at other successful models, such as the approach used in Singapore, regulators in the United States can create a more cohesive regulatory plan and set the cryptocurrency market on a bright future path.