Calls for global cryptocurrency regulation are growing louder and could be in place within a year.
Grouping crypto with problems like climate change and COVID, Ashley Alder, chair of the International Organization of Securities Commissions (IOSCO), called for international coordination in a speech on Friday (May 2).
“If you look at the risks we need to address, they are multiple and there is a wall of worry about [crypto] in the conversations at an institutional level,” he said, according to Reuters.
Stablecoins, in particular, have been in focus this week, given the collapse of TerraUSD (UST), which had been the third-largest by market cap before losing its peg badly on Monday. But all of crypto reacted, with bitcoin briefly giving up all of its 2021 gains and many altcoins, including many of the top DeFi-focused blockchains, down 25% or more over the past week.
The market capitalization of cryptocurrencies dropped $500 billion to $1.3 trillion.
‘The Three Cs’
The use of digital currencies to bypass inefficient, traditional banking services and facilitate decentralized peer-to-peer (P2P) lending services without intermediaries has been touted as a key solution to expanding finance options and leveling the economic playing field for consumers in developing markets.
But wild volatility and rampant speculation over the last two weeks in particular have lit a fire under the sense of urgency for a unified global approach to the regulation of a class of digital assets that were designed from the start to be outside of the financial system.
Saying that a year ago, the general view of regulators was that crypto was still “relatively niche and doesn’t necessarily pose a financial stability risk,” Alder added that this was “partly because of the sheer size or lack of size of the crypto world in comparison to global financial assets and global financial services activity.”
Looking over the past 12 months, he said, “that has completely changed in that very, very short period of time.”
Speaking at a conference arranged by the Official Monetary and Financial Institutions Forum (OMFIF), Alder said on Thursday that concerns about crypto have gone far enough up the global agenda that it is now “seen as one of the three C’s —COVID, climate and crypto — so it’s very, very important.”
He told the think tank’s digital conference that a body similar to those focused on climate finance is needed, and “there isn’t anything like that for crypto at the moment.”
But crypto has gone far enough up the agenda that he would “not expect that to be the case the same time next year.”
Calls for Action Growing
Two weeks earlier, the same call was made by Mairead McGuinness, commissioner for financial services, financial stability and capital markets union at the European Commission.
Calling for the EU and the U.S. to “lead the way on a shared international approach to regulating crypto,” McGuinness said, “together, we can enable innovation in finance while protecting consumers and maintaining financial stability,” in an op-ed in The Hill.
While pointing to the EU’s Markets in Crypto Assets (MiCA) legislation heading toward a vote soon, she said that “to make rules on crypto fully effective, crypto requires global coordination and joint international principles.”
This is hardly the first time stablecoins — and really payments cryptocurrencies — have focused attention on crypto as a whole.
The asset class came to the attention of high-level politicians, regulators and central bankers in June 2019, when Meta — then Facebook — announced its now-defunct project to create a global stablecoin called Libra and eventually renamed Diem. The uproar that followed brought attention to crypto as a whole — as well as kickstarting the global stampede toward the creation of central bank digital currencies, or CBDCs.
“Cryptocurrency is an example of the kind of challenges we are facing as a global family with a changing global order,” Indian Prime Minister Narendra Modi said at the World Economic Forum Davos conference in January.
Calling for global regulation of crypto, he said: “To fight this, every nation, every global agency needs to have collective and synchronized action.”