Cryptocurrency’s torrid year: growing regulation is a bright spot amid FTX scandal and price collapse
- The ugly price plunge and FTX collapse probably outweighed the good work of growing market regulation as blockchain technology is increasingly utilised
- But, taken together, there are very useful lessons in preventing a repeat of cryptocurrency’s problems
Taken together, the ugly, the bad and the good all provide valuable lessons.
First, we cannot continue to rely on the price of bitcoin as the sole arbiter of the sector’s performance. The use of cryptocurrency and innovations leveraging blockchain technology have increased and examples now underpin many parts of the economy.
The Asia-Pacific region represents 28 per cent of the world’s business-to-consumer e-commerce, and the value of this market is anticipated to grow by over 12 per cent year on year. Blockchain-powered payment platforms, such as FomoPay, Nium and Thunes, have helped to improve cross-border multicurrency transactions between buyers and sellers.
As such use cases grow, they inevitably touch on regulated sectors of the economy. This means regulation remains pivotal for the adoption and, ultimately, growth of not only digital assets but also the wider financial services sector. Hong Kong is just one of a growing list of major financial centres to adopt dedicated legislation for cryptocurrency.
Regulatory convergence is also a lesson we must learn from the headline-grabbing collapse of FTX. The demise of cryptocurrency’s former poster child was in part the result of a lack of regulation. In being able to exploit regulatory arbitrage, FTX engaged in business practices it could not have carried out if there had been proper market surveillance.
It is cryptocurrency’s biggest corporate collapse, and has drawn comparisons with the downfall of Enron and WorldCom. But Enron was not oil’s biggest scandal and WorldCom was not the defining narrative for the telecommunications sector. And FTX’s failure stemmed from a breakdown in corporate governance, rather than cryptocurrency itself. Still, as an industry, we should not seek to deflect or move on. We should own it, learn from it and ensure it does not happen again.
In the coming year, regulators must increase their coordination and speed of decision-making to prevent divergences that fuel regulatory arbitrage. We need to ensure that global frameworks stamp out bad actors, rather than encourage them to move from one vigilant jurisdiction to a more permissive one.
Bringing more aspects of the digital asset markets under regulatory control, ensuring greater synergies in regulatory approaches between jurisdictions, and more regular investor education will go a long way towards preventing a repeat of the problems of 2022.
The bad and the ugly probably outweighed the good this year. But put them altogether, and what we can learn is significant.
We learned to talk less about what cryptocurrency is worth and more about what it does. We learned that education is vital to mainstream adoption and investor confidence. And we learned that broad and well-regulated markets, as well as support for more uses and participants within the sector, give us a way forward.
Leonard Hoh is general manager for Asia-Pacific at Bitstamp