FTX and the Need for Cryptocurrency Regulation

There are over 18,000 digital cryptocurrencies, with nearly 500 crypto exchanges. Almost all are unregulated. With the size of the crypto industry, many countries and organizations wonder when regulation will happen. As cryptocurrency continues to draw attention from investors, a spillover effect could affect the stability of other financial systems. For instance, the International Monetary Fund released a study showing the correlation between the price of Bitcoin and the S&P 500. As more investors use cryptocurrency to diversify their portfolios, it leads to a stronger link between crypto-assets and financial markets.

By its nature, cryptocurrency is decentralized and does not require assistance from existing financial institutions or governments. These assets allow cross-border transactions, which challenge how countries protect intellectual property rights, tax assets, and control capital. While those issues have always been a concern, the recent failure of a prominent cryptocurrency exchange, FTX, has increased the calls for more regulation in the future.

Prominent Disaster in the Crypto Industry

A few months ago, FTX was one of crypto’s success stories. FTX was a centralized cryptocurrency exchange that supported the most commonly traded cryptocurrencies. However, that all changed on November 2, 2022. As news leaked about potential issues with FTX, investors began to panic, causing a significant run on the exchange’s reserves. As a result, FTX filed for bankruptcy, and the CEO/founder, Sam Bankman-Fried, resigned. FTX had an estimated value of $32 billion.

With the bankruptcy and potential criminal charges against the founder, many crypto investors worry about the future, especially with investors’ losses at over $1 billion. While many believe crypto will recover from the FTX scandal, it has led to another push for regulation. Investors, exchanges, and governments want confidence in these digital assets. Regulations are one way that cryptocurrency could recover from these recent events.

Current State of Cryptocurrency Regulation

According to the World Economic Forum, there are no current governmental regulations on cryptocurrency, despite international bodies working towards creating policy responses. On a global level, regulators and central banks have always been watching the crypto trend. These institutions want to spur economic growth while stabilizing their own monetary systems. Some countries, like China, have begun to implement a few regulatory options. These regulations are designed to prevent illicit financing, protect the market and consumers, and promote innovation. However, the approaches have varied. For example, India has worked to amend existing laws to cover cryptocurrency, while the European Union and UAE are considering setting up new regulations to deal with the emerging crypto industry.

Regulation Comes with Concerns

While it may seem easy to regulate cryptocurrency, these efforts face many issues. First, many want regulation to be a genuinely globally coordinated approach, meaning that international organizations and countries need to work together. Others believe that regulation could be completed through collaboration between the public and private sectors.

A Look at the Future of Digital Assets and Regulation

The White House’s Executive Order took a step toward regulation, but many still want a global approach to crypto regulations. With the fall of FTX, there are more calls to protect the existing financial markets, safeguard consumers, and prevent the abuse of the cryptocurrency market. Several years ago, cryptocurrency was seen as an alternative to traditional financial markets. Due to investors adding these assets to their portfolios, the time may come for regulating cryptocurrencies. If there was ever a need for digital assets to be regulated, 2023 could be a year that global markets take control over cryptocurrencies.

Cryptocurrency Legal Counsel in California

With the impending threat of regulation, you need to understand what that could mean for your digital assets. 2023 and the years beyond are more than likely to bring changes to cryptocurrency regulation and, if you operate a cryptocurrency exchange or platform, it is best to be proactive in creating a plan for compliance. Whether you have been affected by recent cryptocurrency platform shutdowns or want to know about the legalities of creating your tokens, you need a cryptocurrency attorney. Particularly, if your cryptocurrency organization is being investigated for any allegations of fraud, you need a lawyer who understands this technology, industry and the estate and tax implications.

Unfortunately if you’ve lost money in crypto due to a platform shutdown, there’s not much of a chance that you’ll any funds back through litigation or if the platform goes through the bankruptcy process unless your losses are high 6 or 7 figures.

Contacting a Lawyer

Cryptocurrency might cause issues involving business law, estate planning or tax law. Contact one of the listed attorneys on OrangeCountyLawyers.com and discuss your concerns today.