Crypto executives and politicians are becoming louder in their calls for crypto regulation as the aftermath of the FTX collapse continues to reverberate through the industry.
In just the last 24 hours, the European Central Bank (ECB) president Christine Lagarde called regulation and supervision of crypto an “absolute necessity” for the European Union, while United States House Financial Services Committee Chair Maxine Waters announced that lawmakers will explore the collapse of FTX in a Dec. 13 inquiry.
During an interview at the Financial Times’ Crypto and Digital Assets Summit, Lummis said the bipartisan bill she introduced this year would have prevented the FTX collapse as regulators would be able to see if an exchange fell below the threshold “Immediately.”
“Those are things that had they been in place for FTX, would have set off alarm bells, that would have created regulatory enforcement actions and reviews by federal regulatory agencies,” she explained.
Meanwhile, in an on-stage talk at the University of Nicosia as part of a Binance Meetup Nicosia, Binance CEO Changpeng Zhao said he believes regulation is a way to help the industry develop, “protect consumers” and apply consequences to those caught breaking the law.
Stephanie Link, a chief investment strategist and portfolio manager at investment adviser Hightower Advisors, has called for more regulation as well, stating crypto is “broken and irrelevant” until there is regulation.
Tom Dunleavy, a senior research analyst from crypto analytics firm Messari, gave similar pro-regulation sentiment in a Nov. 28 post on Twitter, noting that clearer regulation around crypto will pave the way “for massive flows” of new investors.
“The biggest concern institutional investors have with investing in crypto is the uncertain regulatory environment,” Dunleavy said.
The crypto analyst cited the Coinbase-sponsored 2022 Institutional Investor Digital Assets Outlook Survey, which found just over half of the respondents considering investing in crypto were concerned about the uncertain regulatory environment.
Last week, banking and financial services JP Morgan in a Nov. 24 note, said that it expects there to be more urgency to get a consistent framework in place in the wake of FTX’s collapse.
According to the firm, regulations are likely to be imported from the traditional finance system, “Thus causing a convergence of the crypto ecosystem towards the traditional finance system.”
The FTX contagion saga sees new revelations around its misconduct every other day, and the latest one solidifies the collusion between the failed crypto exchange and its sister company Alameda Research from the very beginning.
FTX like many other crypto exchanges found it difficult to get a banking partner to process fiat transactions- as banks have been hesitant to tie up with crypto exchanges due to a lack of regulatory oversight. FTX overcame this problem by using its sister company’s banking accounts to process transactions for the crypto exchange.
Former CEO of FTX Sam Bankman-Fried confirmed in a conversation with Vox that the exchange was using Alameda’s bank accounts to wire customer deposits. Some customers were reportedly asked to wire their deposits through Alameda, which had a banking partnership with fintech bank Silvergate Capital.
The collision between Alameda and FTX over the customer’s fund later became the main point of failure. Bankman-Fried had claimed that even though FTX never gambled users’ funds, it did loan them to Alameda. The former CEO claimed that he thought Alameda had enough collateral to back the loans, but as reports have suggested, a majority of it was in the native FTX token.
The claims of the former CEO of the failed crypto exchange regarding misuse of customers’ funds have varied from time to time. First, Bankman-Fried claimed that the exchange and Alameda were independent entities and later also assured that customer funds were safe, only to delete his tweet about the claim later.
The allegations around misuse of banking loopholes arose last week when bankruptcy proceedings revealed that FTX owned a stake in a small rural bank from Washington state via its sister company Alameda. At the time, many alleged that the investment in the rural bank was done to bypass the requirements of getting a banking license.
The scope of wrongdoing in using Alameda’s banking accounts for FTX customer deposits depends on the arrangement between the bank and Alameda. In a statement to Bloomberg, Silvergate said that the bank doesn’t comment on customers or their activities as a matter of firm policy. Silvergate didn’t respond to Cointelegraph’s request for comments at press time.
Israel's chief economist has laid out a list of recommendations as to how policymakers should tackle digital asset laws in the country in order to safely drive up crypto adoption.
In a 109-page report submitted to the Minister of Finance on Nov. 28, Shira Greenberg, Chief Economist at the Ministry of Finance, called for a more comprehensive regulatory framework that would bring trading platforms and crypto issuers in line and would expand the powers given to its financial regulators.
Greenberg recommended Israel should improve investor certainty and protection by imposing stricter licensing requirements on trading platforms and issuers of cryptocurrencies, as well as ensuring funds originating from digital assets are more safely managed.
She also recommended the Supervisor of Financial Service Providers have broader powers to oversee licensing rules and develop a more comprehensive taxation framework for the buying and selling of digital assets.
Expanded powers for the Israel Securities Authority were also recommended by Greenberg, who stated the powers were needed in order to ascertain whether a digital asset falls within the scope of Israeli securities laws and to monitor the activity of payment service providers in the crypto space.
In regards to legislation, Greenberg made mention of the need to implement specific licensing and supervision rules for stablecoin issuers, along with a proposed establishment of an inter-ministerial committee to examine and regulate blockchain-based decentralized autonomous organizations (DAOs).
She added it was important that policymakers and lawmakers take into account the concept of technological neutrality when implementing digital asset-related rules.
Minister of Finance Avigdor Lieberman praised Greenberg for her work, stating the report “constitutes the most comprehensive and up-to-date report currently available on this issue for government use” in Israel and that he expects the “report will serve as a basis for future decisions and legislation” on digital asset-related matters in the months to come.
Despite Israel often being referred to as a tech-savvy nation, the country hasn’t shown to be too crypto-obsessed thus far, having ranked 111th out of 146 countries in a recent global crypto adoption index conducted by blockchain data firm Chainalysis.
Greenberg also referenced data in her report that states that Israeli residents have accounted for 21 million blockchain-based transactions in total, which only equates to 0.04% of all crypto transactions worldwide.
Meanwhile, only 2% of Israelis reported owning or using a crypto wallet.
More adoption appears to be on its way. The Tel Aviv Stock Exchange (TASE) recently announced on Oct. 24 that it intends on creating a blockchain-based platform to expand its trading services to cryptocurrencies. In the same month, TASE also kicked off live tests for a pilot project involving the tokenization of digital bonds, which is expected to be completed in Q1 2023.
Government-issued licenses are finally being issued too, with Israeli-based trading platform Bits of Gold becoming the first firm to receive a license from the Capital Markets Authority in Sep. 2022 to store digital currencies through their own secured custody wallet and provide certain digital asset-related services to banks.
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