- Confidence in cryptocurrencies has been shaken by recent events, leading to calls for more regulatory oversight and consumer protection.
- Regulation could be the key to providing a balance between protecting investors and encouraging innovation, according to Albert Isola
There is no doubt that faith in the crypto industry has been shaken in recent weeks.
A dramatic market decline and panic have gripped retail and institutional investors, forcing them to reconsider holding risky assets amid developing macroeconomic factors.
Embattled crypto lender Celsius, which locked users out of its accounts following rumors of its insolvency, continues to face music from disgruntled participants as it tries to navigate leveraged positions.
Just a few weeks earlier, the crypto market was rocked by the implosion of the Terra ecosystem as its algorithmic stablecoin began decoupling from a 1:1 ratio to the US dollar in what has been called “reckless financial engineering.”
Year-to-date, flagship cryptocurrency asset bitcoin is down 55% and has fallen 70% from its all-time high of nearly $69,000 in November to $21,300, according to data from Blockworks Research.
While this is not the first time the market has witnessed a free fall, the question on the minds of many is how it could have been avoided and what paths the industry should take for future cycles.
For some, such as MP Albert Isola, Gibraltar’s Minister for Financial and Digital Services, regulation is the key to providing adequate protections for investors while helping to smooth out some volatility over a long-term horizon.
“One of the key issues that we are going to live with right now is trust and maybe lack of trust,” Isola told Blockworks when asked what she thought about the recent crypto market turmoil. “When people start to realize that cryptocurrency and the space is volatile and subject to fluctuations, like the traditional financial services market is, they start to think about how this can happen and it comes down to trust.”
The minister pointed to balanced regulation as a vehicle to restore that confidence. “I think it is in these very challenging times that regulation is even more important. Regulations have to improve, not worsen,” Isola said.
Gibraltar studies lessons learned elsewhere
According to Isola, regulators around the world would now take a hard look at companies like Terra and Celsius to better understand how they got there, how they behaved during their respective crises, and how they are answering the call to fix it.
“In all of these things, it’s never what happens, it’s how you respond to what happened that’s important,” the minister said.
Gibraltar considers itself a hub for both start-up and established crypto and blockchain companies, having implemented one of the world’s first licensing regimes for the industry in 2018.
The British Overseas Territory also amended legislation in April that seeks to curb manipulation by asking crypto businesses to respect the markets they operate in and rein in potentially shady behavior.
The former naval garrison, located in the southern tip of Spain, may also soon enable a takeover of its regulated Gibraltar Stock Exchange by local blockchain firm Valereum in a potential world first that would see crypto, bonds and shares traded under the same roof.
Regardless of the services, be it traditional finance, online gambling or crypto, they should be regulated, according to Isola, who added that the right policy not only protects the consumer but also the reputation of the jurisdiction.
Gibraltar currently has around 15 major crypto companies operating within its 6.7 km.two borders, including the likes of Bitso, FTX, Huobi, and Bullish, the exchange backed by PayPal co-founder Peter Thiel. Isola’s reasoned lessons from foreign jurisdictions such as Singapore and the European Union have provided ample examples of how to provide a balance between protecting the consumer and fostering innovation.
It is due to Gibraltar’s favorable regulations that cryptocurrency and blockchain companies from around the world are attracted there, according to Isola.
“The interest of all of us [firms and regulators] in caring for consumers and doing things right is totally aligned,” he said. “Ultimately, I think our wish is for an international set of standards to be applied throughout the world.”
“Let’s at least have a minimum set for everyone to play with a basic set of rules,” Isola added.
ahead of the curve
Indeed, some have argued for more oversight and control over how Celsius and Terra behaved in the market.
This could have prevented contagion to other sectors that the industry is now in, as the number of crypto-related public actions continues to grow.
When asked how difficult it is to stay ahead of financial and technological innovation while weighing the appropriate legislation, Isola said the task was considerable given the nascent crypto.
“When you are innovating by definition you are doing something that has not been done before and that is quite scary,” said the minister. “However, in all cases, the innovation is driven by the experts in the field.”
Isola continued: “In terms of the regulator, I think every industry would tell you that we wish we could get things done faster, that’s the main complaint on a consistent basis. Unfortunately, doing things right takes time.”
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