Crypto bank failures are fueling debate over regulation
The global cryptocurrency industry has been plagued by setbacks, scandals, and high-profile failures over the past few months, sparking a regulatory onslaught to protect consumers from scams and fraud.
Global finance was rocked by the collapse of Silicon Valley Bank last week, and the digital currency sector was hit hard by the demise of US crypto lenders Silvergate and Signature, just months after struggling crypto exchange platform FTX went bankrupt.
Regulators are increasingly keen to oversee a sector that has been booming during the Covid pandemic, when many people have been stuck at home.
The global crypto market is worth more than $1 trillion and has surged in recent months, although remaining well below its 2021 peak of $3 trillion.
The number of crypto customers “grew during the Covid lockdowns,” Martin Walker, banking chief at the Netherlands-based Center for Evidence-Based Management, told AFP.
“They entered an unregulated market, invested at enormous risk, but didn’t realize they were investing in unregulated and not (always) legal assets,” said Walker, who organized a London conference of cryptocurrency critics last year.
He argued that trading platforms were conflicted by their unique position.
“They have a conflict of interest (…) as the owners are simultaneously taking exposure to crypto and selling those assets to their consumers,” Walker added.
In the United States, officials are working on a framework to oversee crypto firms, but in September the White House asked regulators to apply similar regulatory rules that apply to other financial services firms.
As a result, the Securities and Exchange Commission (SEC) market regulator took legal action against crypto lenders Genesis and Gemini.
And in February, the SEC ordered crypto firm Paxos Trust to stop issuing dollar-pegged cryptocurrency BUSD, a stablecoin, for the world’s largest trading platform, Binance.
European Union bills due to come into force next year will force crypto platforms to be more rigorous and transparent in their operations.