Cryptocurrency-linked banking failure fuels regulatory debate

Regulators had to take over Signature bank, which is an important conduit into the conventional financial system for many cryptocurrencies.

Regulators had to take over Signature bank, which is a key conduit into the conventional financial system for many crypto companies, after depleting deposits.

The global crypto industry has been rattled by massive setbacks, scandals and setbacks in recent months, sparking a regulatory race to protect consumers from fraud and scams. island.

Global finance has been rocked by the collapse of the Silicon Valley Bank last week, and the digital currency sector has been hit hard by the collapse of the United States. electronic money Silvergate and Signature lenders—just months after the bankruptcy of the troubled crypto exchange communication FTX.

Regulators are increasingly interested in monitoring an area that has exploded during the COVID pandemic as more people are stuck at home.

The global crypto market is now at over $1 trillion and has surged in recent months, though it is still far below its 2021 peak of $3 trillion.

‘Big risk’

Martin Walker, head of banking at the Netherlands-based Center for Evidence-Based Management, said the number of customers using cryptocurrencies “has increased during the COVID lockdown.”

Walker, who hosted a conference in London last year on crypto critics, said: “They entered an unregulated market, invested with great risk, but didn’t realize that that was the case. they are investing in unregulated and (always) legal assets.”

He argues that trading platforms are conflicted by their unique position.

Walker added: “They have a conflict of interest (…) because owners are simultaneously taking risks in cryptocurrencies and selling these assets to their consumers.”

“People don’t realize this isn’t allowed in conventional finance.”

Regulators also want to monitor such platforms because they connect customers, regardless of experience or knowledge, with the complex world of cryptocurrency.

Economics professor Ludovic Desmedt of the University of Bourgogne told AFP such trading platforms are “a link between a world that will be technically complex, both financially and technologically, with a population that is not yet trained and underinformed”.

Additionally, cryptocurrencies can experience volatile price movements, and their value is not determined through transparent markets—as is the case with traditional currencies, stocks, or commodities. .

As a result, illicit transactions using cryptocurrencies more than doubled last year to nearly $21 billion, according to crypto-specialist firm Chainalysis.

However, this estimate does not include some illicit uses such as drug trafficking.


In the United States, officials are working on a framework to monitor crypto companies, but in September the White House asked regulators to use the same regulatory rules that apply. to other financial service providers.

As a result, the market regulator of the Securities and Exchange Commission (SEC) has taken legal action against crypto lenders Genesis and Gemini.

And in February, the SEC ordered crypto firm Paxos Trust to stop issuing the dollar-pegged cryptocurrency BUSD, a stablecoin, to the world’s largest trading platform Binance.

The European Union’s draft law, expected to come into force next year, will force crypto platforms to be more stringent and transparent in their operations.

In the UK, the government launched a consultation this year to set up a Legal framework for the sector as it seeks to avoid falling behind the EU and the US.

© 2023 AFP

quote: Regulatory debate driving crypto-linked bank failure (in 2023, March 17) retrieved March 17, 2023 from 2023-03-crypto-linked-bank-failures-fuel-debate.html

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