Urgent regulation needed for crypto to evolve

Wild West of financial markets needs commission to oversee activity, says UK professor

Carol Alexander, a professor of finance at the University of Sussex, has called on the US authorities to get serious about regulating bitcoin (BTC) and other crypto assets, along with their derivatives and exchange traded funds (ETFs).

Professor Alexander believes that a regulatory commission that encompasses both markets and institutions is required. And she is urging the US to establish a well-resourced commission that incorporates experts who really understand what drives crypto markets.

“Regulators are often one step behind innovation, which is certainly the case with crypto,” she said. “But with a specialist commission, there’s potential for regulators to keep up or even be a step ahead of those engaging in fraud or seeking to manipulate or abuse the crypto markets.”

Regulation and crypto‘s potential

Regulation would also “precipitate the emergence of true value in crypto assets linked to blockchains” claimed Alexander, adding that digital currencies, such as Ethereum, Cardano, Polkadot and IOTA, have become the backbone of web 3.0.

Alexander added regulation would also develop market discipline, which she believed is critical to allow the crypto sector to mature and show its long-term potential.

“We need sector-specific regulators to eradicate the malpractice that is happening in plain sight,” she argued. Such regulations would put “bad faith actors” out of action. Alexander particularly singled out those who are “wash trading on an industrial scale to manipulate volume” as well as those involved in manipulating price by “spoofing on an industrial scale”.

The professor believes that because most exchanges are unregulated, volume and price manipulation strategies are rampant. “Crypto is characterised as the Wild West of financial markets at the moment – even though US regulators have been trying to rein in the sector, their attempts have been underwhelming,” she said.

Ripple versus SEC

Alexander cited the rise in the price of Ripple (XRP) as evidence that most informed traders believe the case by US Securities and Exchange Commission arguing that Ripple is an unregistered security will fail.

Legal action hasn't been especially effective so far. “After years of legal costs, the New York state attorney also eventually fined Tether a rather paltry $85m. The Commodity Futures Trading Commission‘s action against BitMex for know your customer (KYC) violations had more success, in that they complied, but now they have lost their market share to Binance,” added Alexander.

The professor believes that crypto exchanges cannot be regulated by existing bodies, saying they are too expansive and too dominant for  organisations such as the Inland Revenue Service and Department of Justice investigations to have much effect. “Currently, regulators really don’t know who is in charge," Alexander said.

Further reading: Misleading cryto exchange adverts banned

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