Despite cryptocurrencies like Bitcoin (BTC) becoming increasingly more popular and accepted as a valid alternative to more conventional assets, the market has remained largely unregulated for more than a decade.
The longer this situation draws out, the worse could the regulatory crackdown on crypto be due to heightened risks to investors and the economy, stated Bill Dudley, an American economist who served as the president of the New York Federal Reserve Bank between 2009 and 2019, in his Bloomberg opinion piece published on April 26.
According to Dudley, the blockchain and crypto technology has its shortcomings but it does have some potential benefits as well:
“It could create a better system for identity and privacy. It could help keep track — and verify the ownership — of goods sold internationally. It could vastly improve payments, making them available 24/7 to more people and at lower cost, particularly for the smaller, frequent transactions undertaken by migrant workers.”
However, Dudley argued, “a desirable future for digital finance requires prudent regulation.” He praised the executive order by U.S. President Joe Biden as setting the right tone in this matter but has also criticized it for not doing “enough to ensure that action is taken before the industry’s unfettered growth generates significant disruptions and losses.”
What’s holding up the progress on crypto regulation?
Due to the lack of expertise and fragmented regulatory system dividing responsibility across the Federal Reserve, the Treasury Department, the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission, and others, change has been painfully slow.
To start solving these problems, Dudley believes, the Biden administration should clearly delegate responsibilities, regulators should hire better-informed advisers and establish committees of crypto industry experts.
Furthermore, he stated, officials should take “an iterative approach, in which they place emphasis more on their objectives – say, combating money laundering and protecting consumers and investors – than on the means by which those objectives are achieved. Set a clear goal and let the participants take the lead in figuring out how best to get there in practice.”
Finally, Dudley warned of the dangers of prolonging the introduction of a clear crypto regulation framework:
“The longer officials wait, the greater the risks to consumers, markets and the economy — and the greater the chances that large losses due to cybertheft or a market crash in crypto assets will force an innovation-killing crackdown. It’s thus in everyone’s best interest that the process start now.”
While some countries are making efforts to regulate crypto, others are outright banning them, such as China, which in December extended its crackdown on cryptocurrencies by targeting crypto-related short videos shared online.