The hour of the regulators

Some have already declared crytpo winter, but the crypto industry is still recovering from setbacks. Some countries want to take advantage of the current weakness to implement their regulatory wishes. Against the backdrop of the current mood, they are hoping for more support for their plans. One can be somewhat sceptical: After having tightened the tax screw also on profits from cryptos, they now want to increase the degree of control. Just as the past teaches us that the crypto market always recovers, we also know that father state always comes into his money when there is something to be taken. That alone should be enough of a positive signal for doubters.

How could it have come to this?

We know: Terra-Luna’s ecosystem has imploded and crypto lender Celsius Network is struggling with insolvency worries. This is nothing new, volatility is inherent in cryptocurrencies – far worse is the loss of trust. Just as every currency in the world is based solely on confidence, the crypto market also relies on the confidence of market participants. And since price troughs are not navigated in a few weeks, many impatient and weak-nerved investors jump ship. This fuels the crisis, which is already looking for its next victims: Hong Kong-based crypto lender Babel Finance announced a temporary suspension of redemptions and withdrawals from its products on 17 June due to “unusual liquidity pressures”. In turn, crypto hedge fund Three Arrows Capital has not met lenders’ demands for additional funds.

Regulators on the up

Regulators have stepped up to the plate and are now taking a closer look at the crypto industry and companies like Terra and Celsius. The question is whether the collapse of TerraUSD or the payment difficulties at Celsius could have been prevented. The last word in wisdom seems to be stricter regulation of the crytpo industry as the key to adequate investor protection and to smoothing the volatility of digital assets. According to regulators, regulations as for other asset classes are justified in terms of financial stability, consumer and investor protection.

Here, Europe is somewhat ahead of the United States. With Mica (“Markets in Crypto Assets”), the EU wants to create an innovation-friendly, EU-wide uniform regulatory framework for digital financial services. The main problem in Europe: Currently, applicable law diverges from country to country. Mica’s goal is to regulate the issuance, distribution and trading of crypto assets. The main focus is on legal certainty, consumer and investor protection, the promotion of innovation as well as market integrity and financial stability.

Hot autumn

France wants an agreement by the end of June – but Mica has been a contentious issue for some time, making a quick agreement unlikely. It will probably be autumn in Europe until an agreement is reached. The 180-day deadline of the White House Executive Order will also be due in early September. The first set of will contain a variety of regulatory ideas that are quite likely to be codified quickly once they are formulated. Thus, there will soon be stricter rules for the crypto industry on both sides of the Atlantic – whether this will be good for the market remains to be seen…

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