ORLANDO – If regulators thought crypto was a dangerous place luring investors into “too good to be true” opportunities, some probing questions should be asked as to why they have been so slow or reluctant to traverse the unregulated industry.
Leading global central bankers have called cryptocurrencies essentially worthless and labeled the sector the “wild west” of finance, but inaction across the regulatory spectrum has allowed speculative bubbles to inflate.
And now it bursts.
As rows of “mom and pop” investors see their investments and even life savings wiped out in the crypto market crash, a US Treasury official said Thursday that there is an “urgent need” to implement most adequate safeguards.
On Tuesday, Securities and Exchange Commission Chairman Gary Gensler lamented the lack of disclosure by crypto companies and platforms offering investors returns of up to 7%.
“If it seems too good to be true, it may be too good to be true,” he said.
Gensler, also a former chairman of the Commodity Futures Trading Commission, has long highlighted the potential risks. He and his peers at other agencies have had their hands tied by a lack of urgency and guidance from Congress on crypto market safeguards.
Another reason may be the blurred lines in Washington on how crypto is treated from a regulatory perspective: as a security, commodity, or property?
Whatever the inertia or gridlock in Washington, the result is that ordinary investors have been left to fend for themselves and are now suffering the consequences.
“The regulators are somewhat late on this in terms of consumer protection. A lot of real people have lost a lot of real money and they don’t understand what’s going on,” said Charley Cooper, former CFTC chief operating officer and now director of fintech firm R3.
“It’s up to regulators to set consumer protection rules that make sure moms and dads can get the information they need. Especially in places as loosely regulated as cryptocurrencies.”
ALMOST 50% UNDER WATER
The magnitude of the cryptocurrency crash, which has intensified in recent weeks as expectations of rising US interest rates have grown, is staggering.
Bitcoin fell to an 18-month low around $20,000 this week. It has lost about 28% since Friday, more than half its value this year, and is down 70% from a record high of $69,000 in November.
Crypto lender Celsius this week froze customer withdrawals and terraUSD and luna tokens crashed last month. According to CoinMarketCap, the value of the global crypto market has plunged to less than $900 billion from a high of nearly $3 trillion in November.
Not everyone has been able to get out on time. According to Blockchain analytics firm Glassnode, bitcoin at $21,000 puts 45% of investors underwater on their holdings.
However, by some measures, retail investors are doubling down and see the sell-off as an attractive buying opportunity.
Data from Vanda Research shows that net inflows from retail investors into crypto-related stocks and exchange-traded funds over the last 10 days have risen to $570 million, a pace not seen since January last year.
CLINTON AND BLAIR ENDORSEMENT
At first glance, buying in the heat of a market crash makes little sense. But perhaps they can be given some slack, given the ferocity of the hype that cryptocurrencies are a legitimate, attractive, safe and lucrative investment.
Take for example the television coverage of Monday’s NBA playoff finale between the Boston Celtics and the Golden State Warriors, watched by millions.
Cryptocurrency exchange Crypto.com ran an ad featuring star player Joel Embiid, closing with his much-derided signature catchphrase: “Fortune favors the brave.”
Rival platform Coinbase published its commercial showing tweets over the past decade saying “Crypto is dead”, before closing with the captions “Long live crypto” and “Building for 10 years and counting”.
That same day, bitcoin fell 15%. The next day, Coinbase said it was laying off almost 20% of its workforce, and the company’s shares fell 5% to bring its losses for the year to around 80%.
These announcements are just two examples of crypto companies rushing to get the public to part with their money. A large number of celebrities have been paid handsomely to be the faces of advertisements, endorsements, and industry promotion.
Perhaps most surprising of all was the presence on stage of the two keynote speakers at a cryptocurrency conference in the Bahamas last month: Bill Clinton and Tony Blair.
Jan Ondrus, Associate Professor of Information Systems at ESSEC Business School in Singapore, is sympathetic to the position of regulators protecting citizens while allowing industry to innovate.
“We cannot expect traditional regulators to be crypto experts. They need time to educate themselves on this topic to make the right decisions,” Ondrus said.
– Cryptoverse: Will you grow old with bitcoin? (may 31)
– Crypto regulators may see 10% household exposure as high water mark (May 25)
– Cryptoverse: Is the end of the bitcoin winter approaching? (May 24)
– ‘Mom & pop’ investors left with nothing in technology, crypto crisis (May 12)
(By Jamie McGeever; Contributed by Katanga Johnson and Medha Singh; Graphics by Jamie McGeever, Tom Wilson, and Lisa Mattackal; Editing by Bernadette Baum)