Welcome to the first iteration of DailyCoin’s ‘Twelve Days of Cryptomas‘ holiday feature! 2022 has been a bumpy ride for the crypto industry. Titans have fallen by the wayside, prices have plummeted, and much of the market hasn’t taken off as expected. That said, not all is lost—this is the season of festive cheer!
Over the Twelve Days of Cryptomas, we will look back at how the crypto industry fared in 2022 and provide overviews for its position going into 2023. Once per day, this series will highlight some of the positives for the sector so you can enjoy a merrier Christmas away from the bears!
Without any further ado, please enjoy Day One: ‘Crypto Regulation in 2023: the Industry’s Number One Priority’.
Christmas is upon us, and the crypto industry greets the holiday season at a very different place from where it was at the end of 2021. Last year, digital assets across the board pumped through the roof, and crypto was one of the main topics at the dinner table. The adoption rate basked in its growth—crypto was about to rule the world.
Unfortunately, 2022 could not maintain that momentum, as the industry faced setback after setback, causing the goalposts to move again and again. However, one desire has remained constant among crypto enthusiasts. They all agree that the perfect gift for Cryptomas would be widespread mainstream adoption.
Getting to such a point is, unfortunately, no simple matter. There’s no switch that would suddenly make crypto payments available everywhere. The reality is that the foundation must be laid first. But what would be the backbone of those foundations? The answer that comes up most often is regulation.
Let’s take a deeper look at why the present crypto diehards should be looking for this cryptomas is regulation.
The Current State of Crypto Regulation
“The economy in 2021 reflected the massive monetary and fiscal easing in 2020. The economy in 2023 will reflect the massive monetary and fiscal tightening in 2022.” Macro analyst Alfonso Peccatiello said this a few weeks ago regarding the current state of the global economy.
It is a similar story for crypto. In 2021, crypto adoption grew like never before. This was mainly because the skyrocketing prices of most assets attracted unprecedented attention from outside.
Celebrities like Justin Bieber were rocking their Bored Apes NFTs as their profile pictures on social media. Banks like JP Morgan were publicly praising crypto. Even traditional brands like Nike and the NBA started delving into Web3 with their products.
The economic hurricane Peccatiello alluded to has seemingly come to crypto earlier than expected. This was not just because the majority of assets have plummeted over 90% from their highs leading to liquidity becoming nigh non-existent in today’s market.
The Breaking Point
With the sudden implosion of the Terra LUNA ecosystem, the industry saw a slew of firms and crypto lenders halting withdrawal operations and issuing “we’re fine” statements before collapsing altogether.
Along with the pump and dumps, Ponzi schemes, and rampant hacks seen this year, these unsavory developments have done immense reputational damage to the crypto industry. With the FTX fiasco fresh off the press, many are hopeful that this will be the final nail in the coffin.
But it’s not all doom and gloom—far from it. The underlying blockchain technology is still there, getting better by the day. The potential to disrupt entire industries still exists. And the interest, while undeniably lower than last year, is still there.
There’s just one ingredient missing: regulatory clarity. That’s what crypto desperately needs, and it needs to get it in 2023.
Why 2023 Is Pivotal for Crypto Regulation
A general consensus among analysts is that inflation will ease up in the second half of 2023. This should allow the economy to recover in late 2023 or early 2024. If policymakers were to provide regulatory clarity before this recovery, then crypto would be well-positioned to embrace millions of new users once a new credit cycle begins.
If 2022 can teach us anything about crypto, it’s that grifters are resilient. Without such guidelines, they will always find their way to take advantage of naive users. This deceit may occur through simple pump and dumps or more elaborate schemes. And it doesn’t have to be in hiding: Celsius, Three Arrows Capital, Terra Luna, and others were able to harm their customers in broad daylight. FTX and Sam Bankman-Fried certainly drove the point home.
The Cost of Absent Crypto Regulation
But all of that could’ve been avoided if the industry had been regulated. For example, Coinbase CEO Brian Armstrong said in the wake of the collapse of FTX that more than 95% of crypto trading in the U.S. has developed overseas because crypto regulation in the country has been “hard to navigate.” This problem alone has cost billions of dollars to customers all around the world.
In recognition of this, there has been an intensifying push from government agencies, jurisdictions, and even crypto representatives advocating for clear guidelines. But what should those look like?
Honest and Fair, Transparent and Respectful
First and foremost, crypto needs honest and fair regulation. The precondition is this: whatever regulation is approved, it must respect the ethos of crypto being decentralized, trustless, and permissionless. Decentralized finance (DeFi) must remain free and open to all.
The eternal question of what should be considered a security and what should not has long been a topic regulators have failed to agree on. Most notably, U.S. Securities and Exchange Commission (SEC) Chairperson Gary Gensler has repeatedly stated that he believes Ethereum is a security. This is especially after it transitioned to a Proof-of-Stake model, while Chairperson of the Commodities and Futures Trading Commission (CFTC) Rostin Benham recently went on record to state that only Bitcoin is a commodity.
Regardless, what has to be avoided is regulators having the freedom to go after crypto companies without having clear guidelines as to what they can and cannot do.
For example, a couple of months ago, the SEC won its case against LBRY, a decentralized file-sharing and payment network. A New Hampshire judge ruled that the project broke U.S. securities laws by selling its native token LBC without first registering with the SEC.
LBRY’s situation was similar to Ripple’s, which has been grappling with the SEC in court for years. The case is expected to settle in early 2023, with the odds swinging back in favor of the SEC.
Europe’s Perspective on Crypto Regulation
While U.S. policymakers are going back and forth on the topic, Belgium’s Financial Services and Markets Authority (FSMA) might provide a potential answer. The regulator recently came out with a paper arguing that Bitcoin, Ethereum, and other crypto instruments are created by a computer code and not in an agreement between the issuer and the investor are not securities.
The FSMA explained that its paper will act as a guideline for the European Parliament’s landmark Markets in Crypto Assets Regulation (MiCA), one of the first comprehensive crypto regulatory frameworks. While it still lacks clarity in some areas, like DeFi and NFTs, MiCA covers a lot of ground in crypto, including stablecoins, mining, and other aspects.
Currently, the framework will require stablecoins not denominated in euros to be capped at one million transactions and €200 million in terms of transaction value when marketed in the eurozone.
MiCA would also regulate influencers, who will face charges if regulators deem they swayed the opinion of others to manipulate the market and profit themselves. No more pump and dumps at the expense of retail investors.
After years in the making, the bill is set to go into force in the second half of 2023 or early 2024. It might create a precedent for other countries to introduce their own regulatory bills.
Most agree that crypto needs to be regulated, one way or another. Regulation will bring clarity, and clarity will bring opportunities to the incumbents of the industry and those waiting to enter. Blockchain technology has always been intended to fix the worst of the traditional finance world, and properly outlined guidelines for the industry would lay the path to enable it.
If 2023 is the year crypto finally receives clear, standardized regulation, it can blossom like never before in 2024 and beyond.
On the Flipside
- Regulations that are too heavy-handed run the risk of directly contradicting the principles of decentralization. Some worry that, with traditional financial regulators staking claim to the jurisdiction, any guidelines implemented would be focused on installing systems inherent to traditional centralized finance.
Why You Should Care
The events of 2022 have made it clear—the crypto industry needs policymakers to introduce regulations to protect users and investors, and 2023 is the perfect year to do it. Until the space gets properly—and fairly—regulated, crypto users should be extra careful when interacting with protocols and entities.
Read more of our holiday feature series:
12 Days of Cryptomas
What did DailyCoin bring for day two of Cryptomas? Find out below:
Can Layer-2s Help Ethereum Finally Flip Bitcoin? – The Future Ethereum