In many nations, government regulations tend to lag the marketplace. This trend is very apparent in the financial markets. For this reason, the financial markets have always had strong, industry-led, regulatory bodies.
In the cryptocurrency markets, industry self-regulation is just getting started. There are a number of reasons for this. However, it is vital for the crypto industry to create effective self-regulations, regardless of how slowly some governments are moving on blockchain regulations.
The crypto markets need more oversight
Uncertainties, price volatility and the worry of illegal activities all affect the cryptocurrency markets. All these things happen in any financial market, but they still demonstrate why the crypto markets need to be regulated.
The lack of public understanding and trust are holding back crypto adoption. A lack of governmental oversight is also an impediment for wider crypto usage.
Self-regulation in the crypto industry could include a set of standards for trading and for organizations to engage in market-making activities. The supervision of any activities in the market is important, but it is also important to educate both the public and governmental institutions about decentralization.
Core targets for information can include protection for customers, transparency and security at a market-wide level. Self-regulation in any market will help create order. In the global crypto ecosystem this is especially true. It can create many tools to support the government in creating effective regulations. Efficient self-regulation also helps to reinforce trust and gain further support from the public.
Existing efforts support industry
Some countries have already been moving toward creating legal regulations for managing digital currencies. The United States has created a number of regulations related to virtual currencies but continues to follow the market in the formation of these regulations.
In 2013, the United States Department of the Treasury classified Bitcoin as a convertible decentralized virtual currency. The Commodity Futures Trading Commission (CFTC) classified Bitcoin as a commodity in September 2015. This allowed virtual currency derivatives to be publicly traded.
A legal framework for digital money has been under development in Japan since 2016. Coins such as Bitcoin are not considered legal money in Canada. But the Canadian government allows consumers to use digital currencies to buy products and services online or at businesses that accept them.
The National Assembly of El Salvador went even further and passed a law adopting Bitcoin as a national currency. This made El Salvador the first country to make Bitcoin legal tender.
Many countries are supportive of crypto regulation. But not every nation is in a position to monitor the digital asset markets on their own. The decentralized markets are huge and keeping an eye on all the blockchains that are out there is an enormous task.
New tools are needed
Countries around the world are looking for ways to manage virtual currency markets. Self-regulation in any financial market means advanced access to data, and this requires state of the art technology.
In the U.S., the Virtual Commodity Association is a clear example of a successful self-regulatory organization. Organizations like VCA help define standards and best practices for virtual currency trading. Customers will be protected and benefit from these guidelines, but its policies can also help governments.
Governments aren’t in the business of blockchain, so these new markets may seem confusing to regulators. The technology could be overwhelming, which may lead to overly strict regulations.
While great regulatory ideas help both industry and government, the technology that is used will be equally important. Blockchain markets aren’t centralized, which makes data gathering far more difficult when compared to centralized markets, like the U.S. equity markets.
The massive gains in the crypto space have led to a huge demand for trading tools. However, these same data gathering tools may have a massive impact on industry self-regulation. Transparency starts with accurate data. Without active data gathering across all the major blockchains, any sort of regulation will be ineffective.
There are now multiple platforms focused on helping traders and investors, and their toolsets are worth looking at for any blockchain regulatory group. Especially in a marketplace that is traded in real time, all the time, advanced artificial intelligence tools have to be a part of oversight and regulation.
A growing sector
It is clear that there is a demand for decentralized assets. The movement in Central America to make Bitcoin legal tender is a clear demonstration that cryptos are here to stay.
Self-regulation will lay the groundwork for a wider role for the crypto sector globally. Over time, governments can leverage the efforts of private industry, and selectively use the tools and techniques that have proven useful.
At its core, self-regulation aligns industry with government and allows both the public and private sector to set shared goals — and prosper together.