While United States regulators such as Securities and Exchange Commission Chair Gary Gensler make bad-faith claims that “there’s been clarity for years” when it comes to cryptocurrency, the European Union took real action in April when it passed the Markets in Crypto-Assets (MiCA) regulatory framework. While imperfect, it was a crucial move in the right direction for our industry and a signal to the U.S. that it will be left behind if it continues to stand still and rely on antiquated regulations.
Similar to how Bitcoin (BTC) took old technological, economic and financial concepts to build something new, regulators must rework existing regulatory and financial security frameworks to create a successful environment for participants. There are many useful and valid elements in our existing financial and regulatory frameworks.
On the other hand, there are many problems with the blockchain industry that the traditional regulatory framework does not address sufficiently — this leads to frustration and wasted resources as lawyers bicker over potential interpretations of statements instead of abiding by clearly defined legislation.
While Web3’s practical applications have shown great potential, it remains a remix of this traditional financial system — albeit a remix dedicated to improving efficiency, openness and fairness for all participants.
MiCA: A necessary but mediocre step forward for regulation
Despite the complex language around financial and securities regulations, the situation is really more simple than it appears. In short, our regulations attempt to prevent people from doing bad things to other people. Examples could include terrorists sending or receiving money to facilitate acts of terrorism or fraudsters making fraudulent claims to investors. It also includes ensuring that licensed individuals and entities are held accountable to a set of operating standards developed over the history of our modern financial markets.
In the more technical sense, the laws governing these operating standards are:
- Anti-Money Laundering and Counter-Terrorist Financing laws
- Securities and commodities laws
- Market infrastructure regulation
Despite the SEC’s insistence that existing regulations cover these three issues broadly, many elements manage to fall through the cracks of these roughly 100-year-old definitions, rules and penalties. We can largely attribute that problem to two…