A group of global financial regulators have come together to release a roadmap of global measures to regulate crypto. The move comes as regulatory inconsistency across countries remains one of the biggest barriers to adoption, according to research company GlobalData.
A policy paper released on Thursday by the G20’s Financial Stability Board (FSB), International Monetary Fund and other global financial regulators said “comprehensive regulatory and supervisory oversight of crypto-assets should be a baseline to address macroeconomic and financial stability risks.”
The paper is set to be presented at the G20 this weekend (9 Sept) as part of an effort to enforce global regulatory norms for the industry.
After the collapse of crypto exchange FTX last year, which caused a disastrous domino effect across crypto, the market needs clearer laws and legislation.
Members of the IMF and the FSB have set out a timeline to recommend ways to regulate crypto in a way that will lower some of the potential risks.
“Widespread adoption of crypto-assets could undermine the effectiveness of monetary policy, circumvent capital flow management measures, exacerbate fiscal risks, divert resources available for financing the real economy, and threaten global financial stability,” the paper said.
The risks, which the paper says are being exacerbated by noncompliance with existing laws, will not be figured out just by banning cryptocurrency as a whole, the paper repeated.
Will the crypto roadmap stop the confusion?
GlobalData’s thematic research into cryptocurrency this year notes that “regulatory uncertainty” is one of the most significant hurdles to broader crypto adoption.
“While many countries and agencies within countries have sought to regulate cryptocurrency in some fashion, their disparate approaches have led to confusion among crypto companies and prospective investors,” GlobalData said.
The EU recently approved the world’s first ever set of rules to regulate crypto, making it the first major jurisdiction in the world to introduce tailored rules for the sector.
The Markets in Crypto-Assets Regulation (MiCA) is due to take effect in 2024 across the EU and “will provide regulatory certainty and stronger protections for consumers in the crypto market, while supporting innovation.”
However, the recent paper by the IMF and FSB notes that more work needs to be done – including making it clear how tax works in the crypto space and how existing laws comply with the rapidly-changing market.
Why are governments so keen to regulate crypto?
Since the major crypto crash of 2022, a renewed interest has been sparked in regulation, especially across the EU and US. However, as GlobalData notes in its 2023 crypto thematic research paper, a large portion of the market has remained unregulated.
This has led to things like stablecoins (crypto that is pegged to a real-world asset) having a slow adoption due to a lack of regulatory clarity.
As of May 2023, there were more than 24,000 cryptocurrencies in circulation, according to CoinMarketCap. More than double the recorded 10,000 at the beginning of 2022.
The reason for the whopping increase can mainly be put down to the fact that crypto has almost zero barriers to entry – meaning anyone is able to create their own.
Despite this often being celebrated as a positive for crypto, allowing all walks of life to get involved, much of the new currencies emerging are being used as a way to exploit market hype to make quick returns.
According to GlobalData, the market value of all cryptocurrencies declined by 64% in 2022 to below $800 billion but bounced back in 2023 to reach $1.1trn on May 16, 2023.
While it is clear that crypto is slowly increasing, it is still a huge way away from its height in 2021, when its market value reached an all-time high of over $3trn.
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