The lack of clarity and regulation around cryptocurrency was most recently underscored by the spectacular collapse of FTX. The details of FTX’s failure are still being uncovered, and the exchange’s bankrupcy came on the heels of several other nascent crypto companies that folded.
But it doesn’t mean there are no rules, Barry Bernstein, ViewTrade‘s business development and technology services lead, said Thursday at Benzinga’s Fintech Deal Day & Awards in New York City during a discussion about regulation.
Applying financial rules and frameworks that are up to 50 years old to an existing business is “sometimes not easy,” he said.
Why Crypto Regulation Is A Turf War: Nisa Amolis, managing partner at A100x Ventures, said a lack of regulation and direction in the crypto space has led to a tragedy of commons.
It’s “a turf-war situation been the SEC and CFTC on who is actually going to be the regulator in the crypto space, and in what instance,” she said.
How To Add Regulation Without Stifling The Industry: Adam Garetson, chief legal officer at WonderFi Technologies Inc WONDF said the most important thing is to not regulate the industry in such a way that it gives a monpoly to major players, or stifles innovation in any way.
The WonderFi exec said he agrees with Bernstein’s sentiment regarding how to regulate the industry.
“Look at what already exists from a legal and regulatory perspective, start with applying that and see where the gaps are,” Garetson said. “Try to put gap regulation on those individual spaces or use cases.”
Finalis founder and CEO Frederico Baradello said a regulatory framework that allows companies to innovate with new technologies can raise the bar and standard of trust.
“If technolgy can be appropriately leveraged, it can actually decrease the error rate of [regulatory] decisons, and ultimately goes back to the regulators’ bottom line, which is about engendering more trust.”
The Regulatory Backdrop: Numerous regulators in the U.S. are involved in crypto regulation, including the CFTC and SEC, as well as the Department of the Treasury’s Financial Crimes Network and many states.
This complicated web, as well as holes in the web, are believed to have contributed not just to the recent collapse of FTX, but also of many other crypto players, including Celsius, BlockFi and Voyager.
The SEC regulates conventional securities in the U.S., including shares, debt instruments and investment contracts.
The CFTC, on the other hand, has legislative jurisdiction over commodity derivatives such as futures or swaps, except when such commodities are securities.
The CFTC also has the jurisdiction to undertake enforcement proceedings against individuals who conduct fraud in connection with commodities transactions, even if no derivatives are involved.
Finalis CEO Frederico Baradello speaks Thursday, Dec. 8 at the Benzinga Fintech Deal Day & Awards in New York City. Photo by Gaspar Marquez.