The bull market in cryptocurrencies in recent years has brought many new crypto investors. The market has grown so fast that the industry could now pose a risk to the financial system if not properly regulated, and 2022 was proof of that. The US government wants to ensure that the problems do not get out of hand in the future.
Too little bitcoin and crypto regulation
In a press release writes the American government that the crypto industry is not sufficiently compliant with existing regulations. Crypto companies flout many of the rules governing the mainstream financial industry, which the Biden administration says led to so many crypto companies failing last year.
For example, companies would have poor cyber security. Last year was a record year in terms of hacker profits. This would even have funded North Korea’s nuclear weapons program.
It also hammers home how companies operate in the crypto sector. For example, last year several crypto companies claimed that deposits are insured by the FDIC, the American version of the Dutch Deposit Guarantee Scheme. The Biden administration insists that this is not true. That is why these companies were also forced to stop claiming this last year.
Companies also need to better separate customer crypto from the rest of their assets. In 2022, many people have lost money because companies such as BlockFi, Celsius and FTX were not legally obliged to do so yet.
Stricter regulations for crypto companies
At the same time, the Biden administration is patting itself on the back. At the same time, it says it has made a lot of progress in terms of regulations. For example, it has emphasized since last month to provide clearer guidelines.
The US parliament must also take more steps to prevent problems in the sector. Policymakers will be given more powers to prevent conflicts of interest. FTX can be seen as an example of how not to do it. This crypto exchange functioned both as a marketmaker as a company that also traded itself. This can’t just happen.
The plan to keep cryptocurrencies separate from the rest of the financial system is striking. This should prevent regular financial institutions from becoming ‘infected’ if more crypto companies collapse.
Stablecoins are also mentioned. These must be better regulated and hold better collateral, so that they do not simply lose their link with, for example, the dollar. Institutions must limit their exposure to the crypto industry. The word ‘risk’ is mentioned no less than 14 times. We will probably hear next year what kind of regulations will be introduced.