The crypto market has been likened by critics to the Wild West and now a major player is asking for the sheriff to come to town.
Binance, the world’s largest exchange for trading Bitcoin and other cryptocurrencies, says it’s time for global regulators to establish rules for the crypto market. It released a list of “10 fundamental rights for crypto users” this week that it wants to guide discussions with regulators, policymakers, and other exchanges.
The company acknowledges that cryptocurrency platforms have an obligation to protect users and implement processes to prevent financial crime, along with a responsibility to work with regulators and policymakers to set standards to keep users safe.
The call for regulation may seem odd for an industry whose popularity is exploding in part precisely because it seeks to operate outside of government and other regulatory authorities. But Binance CEO Changpeng Zhao, who goes after “CZ”, says that more regulation for the industry is inevitable and this allows his company to play a role in the discussions. It can also help attract those who are still hesitant to get into crypto.
“This year, most of the regulators around the world are looking at cryptocurrencies attentively, and many of them are communicating with us,” Zhao said. “So we feel this is the right time” to make the call for a global framework.
“We feel that it is important for businesses in the industry to have a seat at the table,” he said. “And we also feel that some regulations, if they are introduced in a vacuum, may not have practical considerations for how they are applied and they are not well applied.”
Regulatory scrutiny of cryptocurrencies has intensified as they become more popular. Big businesses, professional investors and even the government of El Salvador are buying in, even as critics struggle to see the value of digital currencies run by NGOs government created. They are expanding their crypto base beyond their original core of fanatics and sent Bitcoin last week to a record high of nearly $68,991, more than doubling in 2021.
Binance’s call for regulation reminded some on Wall Street of the books that companies followed in other disruptive industries after becoming big winners.
“They’re doing what Uber and Lyft did,” said Gil Luria, technology strategist at DA Davidson. “Build a business ahead of regulations. When it gets to a certain size, acknowledge that regulation helps and then help shape it.”
Zhao said that Binance welcomes regulations “for a variety of reasons. One of the smaller ones is selfishness: it’s that in a regulated industry some of the bigger players will remain. The players will remain.” smaller is cut off, which is unfortunate for those people.”
The move could also prove wise if the US-based Binance business eventually tries to sell shares on a US exchange, something Zhao hopes will happen in the next few years. One competitor, Coinbase, achieved a market value of nearly $74 billion on Wall Street following its initial public offering this spring.
Such enrichment opportunities have attracted many new investors to cryptocurrencies, as well as keeping an eye on regulators.
Gary Gensler, chairman of the Securities and Exchange Commission, said in a speech this summer, calling it the “Wild West.”
“This asset class is fraught with fraud, scams, and abuse in certain applications,” he said. “There’s a lot of hype surrounding how crypto-assets work. In many cases, it’s not possible for investors to get coherent, balanced, and complete information.”
Analysts said they expect Binance to agree to report transactions to US regulators looking for movements related to terrorist financing, among other things. One of Binance’s “fundamental rights” also requires strict regulation of markets that offer “derivatives and leverage,” which can be lucrative but also risky transactions for investors. Investors.
Most regulators worldwide are focusing on “know your customer” rules, where financial firms try to verify the identities of people using their services, Zhao said. speak. They also play an important role in consumer protection.
But even there, “different countries have different interpretations and different meanings for these very simple words,” Zhao said. In the US, for example, the anti-money-laundering focus is on preventing terrorist financing, while Chinese regulators are looking more at people moving money out of the country.
Campbell Harvey, a finance professor at Duke University who recently wrote a book titled “DeFi and the Future of Finance,” says managers are catching up with complex and evolving technologies. growing rapidly, while trying to find a balance between protecting investors and not disrupting innovation or bringing it to other countries.
The stakes are going up to get it right. Current uncertainty around what regulation will ultimately look like is keeping some large institutional investors like pension funds from going crypto. And that’s where the bigger money-making opportunity lies for the industry.
Given all the complications, Harvey said the best solution might be for the US government to create a new agency to oversee cryptocurrencies and the ecosystem around them, rather than relying on a combination of different cryptocurrencies. management agency.
“It’s complicated and doesn’t fit many conventional regulatory models,” he said.
Zhao, who said the only cryptocurrencies he owns are Bitcoin and Binance coin, said some parts of the crypto world look more like securities, while others look more like commodities or currencies. than. And the ecosystem is growing day by day as people can generate new tokens with just a few clicks and keyboards.
He likens it to the early days of the Internet, when people were trying to figure out what kind of media it was. Is it radio? TV? What else?
“People may be inclined to view crypto as a single asset class, which I think is a bit misleading,” he said. “Cryptocurrency is an underlying technology that can improve many traditional assets.”