A day in the crypto market is often the equivalent of a week in real life, due to its volatile, unpredictable nature. So what could a whole new year bring to the big table?
by Vlad Faraon, CBO and Co-founder, Coreto
Plenty of changes, we hope, as cryptocurrencies are now becoming mainstream. But their popularity doesn’t come without risks. The crypto market value blew past $3 trillion, according to CoinGecko pricing, but the scams are on the rise as well. In just 6 months, between October 2020 – March 2021, over 7,000 people lost more than $80millions by investing in altcoins according to The Federal Trade Commission (FTC). The amount was 10 times smaller in the previous year.
Despite its rapid growth and severe caveats, the crypto transactions aren’t currently regulated by the Financial Conduct Authority (FCA) or covered by the Financial Services Compensation Scheme. This means that the industry is a minefield, full of unethical players. Under these circumstances, people should never invest more than they’re willing to lose.
This month, regulatory agencies issued a joint statement driven by the concern that ‘the emerging crypto-asset sector presents potential opportunities and risks for banking organisations, their customers, and the overall financial system.’ The Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) analysed various issues regarding crypto assets and are aiming to provide coordinated and timely clarity. They believe that it’s necessary to use a common vocabulary, identify the key risks and analyse the applicability of existing regulations and guidance. This sets expectations for more consumer protection and a standard the whole industry can adhere to.
In addition to this, the OCC published a letter about how national banks and federal savings associations should implement safety measures before undertaking certain cryptocurrency and stablecoin activities. They suggested controls that include engaging with their supervisory office to show written notification of their proposed activities, alongside the criteria that the OCC will use for the evaluation, with a view to providing a supervisory non-objection.
All this progress is welcome, as at a macro level they’re meant to protect the interests of the investor. But the way things developed with the US Securities and Exchange Commission (SEC), which has the same goal, makes us want to take this with a pinch of salt.
On one hand, the SEC is looking after people’s money, but on the other, it wants to make the market more efficient. Catering for both is a challenging job, and some might say that it became too protective as an institution and got in the way of progress. See what happened to Basis, for example, designed to keep its price stable. This would have been an innovative solution for the crypto space, coming from a place of accountability and transparency. The project was however shut down because of strict, old regulations applied to a novel system. In its desire to go after scams, frauds and manipulative activity, it discourages entrepreneurs from launching new projects. This is one of the reasons why London, not New York, is the centre of fintech investments now.
With the industry’s rapid advancement there is a growing need for regulations that are agile and flexible. As the SEC might be directing its enforcement actions against DeFi, NFTs and even stablecoins, revising its modus operandi is required sooner rather than later.
While policy-makers are slowly devising their roadmaps to a healthier ecosystem, the industry could regulate itself by relying on trust and knowledge. The harsh reality is that in the crypto space there are many bad actors. We believe there is little to no chance that there are retail investors out there who didn’t experience scams or at least somebody trying to scam them. For the retail investor to have more confidence in this space, there is a high need for a tracked record system for projects, influencers, and anyone with a voice in this space. We can’t trust someone with our investment decisions just because they have a big following. Retail investors shouldn’t base their confidence on that. It’s important to understand that a tracked record of past performance, immutably stored on the blockchain, is a step forward towards building the trust bridge in 2022.
The same trust and knowledge lie at the heart of Coreto, our reputation-based research hub, which is a secure environment for crypto communities. Here, members have to prove their influencer status by building a history of accurate analysis and market predictions. This will elevate critical thinking, reasoned argument, shared knowledge, and verifiable facts. Only when they’ll have a good enough reputation score will they be able to influence the newcomers, and also monetise their knowledge. This is significantly different from what happens currently online, with some so-called crypto influencers misleading masses into faulty investments and then fleeing the scene. This creates a win-win situation: the goodwill influencers will be able to shine on a digital stage, while the community will be able to make more educated investment decisions.
If we all remain loyal to these guiding principles – trust and performance – the whole crypto community can benefit and evolve from it.