How often have we heard the brave new world of the crypto industry described as “The Wild West” of finance? “bitcoin” and “volatility” are nearly synonymous in the minds of the most prudent investors and perhaps even the entire general public.
While the original unregulated nature of decentralized financing has a tremendous “democratizing effect” it also opens the door for the inevitable rush of bad actors; especially those who reinforce the Wild West stigma which draws scrutiny from governmental authorities and kills potential investor confidence.
Taming the "Wild West" Perception of the Crypto Industry
The headlines are rife with tales of terrorists and money launderers who are all too eager to abuse the system of “totally unregulated” crypto exchanges and digital wallets allegedly accessible to anyone with a smartphone. This is the “Wild West” legacy which only a prudent regulatory framework can overcome in order to move the crypto industry forward and unleash the incredible business potential of blockchain technology.
With a total Market Cap of $264,652,191,020 as of July 30, 2019, a comprehensive regulatory framework can provide the gatekeepers that assure legitimacy and stability in an industry plagued by rumors and the ensuing volatility which can make it difficult, if not impossible, to view cryptocurrencies as reliable instruments for the consistent store of value.
When leading cryptocurrencies such as #1 bitcoin drop $3,000 in 24 hours leverage buying only exacerbates a whiplash cycle which restricts it to a store of value hedge which many backers refer to as “digital gold”. Add high transaction costs and it’s hard to imagine bitcoin taking its proper place as a method of payment for everyday transactions.
A regulatory framework can put safeguards in place to prevent radical swings triggered by such mundane events as the brief outage experienced by the cryptocurrency trading platform Coinbase, coincidentally at the same time when bitcoin experienced its sharp decline.
A quick Google search for “wild west cryptocurrency” brings up a long list of sources around the globe ranging from reputable financial reporters to opportunistic politicians making political hay with propositions intended to “tame the Wild West” of the cryptocurrency environment.
After the infamous $460 million dollar Mt. Gox hack, described by Wired writer Robert Mcmillan as “a messy combination of poor management, neglect, and raw inexperience”, investors and startups alike are finally accepting the necessity of regulation and accountability in the maturing crypto industry.
Despite the down turning effect on crypto markets when rumors of regulatory initiatives begin to circulate, regulation is actually good news for the crypto industry.
For accredited investors, venture capitalists, and financial institutions with the deepest pockets, long-overdue regulation is a reassuring sign that the crypto sector is maturing under the auspices of experienced financiers and creative legal minds and moving out of the hands of the technically brilliant but financially naive computer nerds who visualized an unregulated and equally unachievable crypto utopia.
High profile losses such as the Mt. Gox fiasco and others such as the more recent Silk Road dark web laundering scheme raise outrage, fear, and trigger public panics (FUD, anyone?).
When exploited vulnerabilities of the perceived unregulated “wild west” crypto world induce wild swings and volatility they encumber the crucial widespread acceptance which is essential if the crypto industry is to thrive. Regulation is the key, a long-overdue solution to establish the fundamental accountability and respect which is mandatory for cryptocurrency to be accepted as a trusted financial instrument. As we move on we’ll see how prudent regulation is alleviating the most persistent obstacles we’re experiencing now as the crypto industry matures from exciting innovation to a trusted and powerful financial entity which is highly likely to function as the primary, fundamental economic platform of the 21st Century.
And let’s start by busting the prevailing “Wild West” myth which is so detrimental to cryptocurrencies and the blockchain industry at large.
Myth: The Crypto Industry is "Totally Unregulated"
One of the most persistent misconceptions, according to the Blockchain Alliance white paper by leading legal counsels Jason Weinstein, Alan Cohn, and Chelsea Parker, is that cryptocurrencies and blockchain technology are totally unregulated but as the authors point out “Nothing could be further from the truth”.
Regulations are already in place under numerous state and federal agencies in the US and other countries. The problem is not a “totally unregulated” business environment but a tangle of conflicting and disparate approaches and confusion ranging from overlapping jurisdictions to exactly how to classify cryptocurrencies and blockchain products and services as assets.
As creative legal minds catch up to the revolutionary innovation which is blockchain technology, the crypto industry is welcoming regulatory oversight such as Europe’s 5th AML, (Anti-Money Laundering) Directive which regulates cryptocurrency exchanges to deter the world’s second-highest rate of illicit flow of bitcoin through Europe’s conversion services. Conversion platforms, where users can exchange cryptocurrency to fiat, and cryptocurrency to cryptocurrency, or send cryptocurrency to other users, are the most vulnerable to abuse.
In the US these exchanges are also regulated but in different ways in various jurisdictions. Clear, comprehensive regulations and AML guidelines including KYC (Know Your Customer) policies which verify identities and the source of funds can eliminate confusion and deter bad actors from contributing to the small but notorious percentage of illicit activity which smears the reputation of the crypto industry.
A Well Designed Regulatory Framework
As the crypto industry moves forward the need for regulation is just as apparent as it has always been when innovation brings with it the promise of huge profit and economic opportunities.
The SEC itself evolved as a result of unregulated commodity bubbles and the resulting havoc of a “Wild West” environment prone to manipulation.
Digital transformation launched by the internet was a paradigm shift in the way the world conducts business, but the scams and hacks carried out by a few malicious actors were hardly enough to impede the explosive growth of the digital global economy.
As counterintuitive as it may seem to timid investors, infamous abuses of cryptocurrencies by bad actors help to spotlight vulnerabilities and loopholes which can be closed with a well-designed legal framework.
Blockchain tech is so unique and unprecedented that it will take equally brilliant legal creativity to standardize definitions of digital assets as commodities or securities, determine best mining practices, and elimination of the numerous gray areas surrounding ICOs.
We’ve already seen progress with the introduction of STOs, the Security Token Offerings which leave no doubt about the asset class and draw the highest class of accredited investors who benefit from SEC regulations already in effect.
While the crypto industry moves through the transition from revolutionary innovation to the well-regulated financial pillar of the 21st Century economy, startups and entrepreneurs can face a labyrinth of continuously changing rules which vary by region and jurisdiction. As we’ve discussed above, a legacy of negative bias caused by the “Wild West” perception of the crypto industry can also be a deterrent for cautious investors.
At Token Raise, we can add much-needed legitimacy and ensure both you and your potential investors that your blockchain projects are certifiably trustworthy, compliant, and secure. We can help connect you with an established network of investors when you’re raising funds with an STO, so please don’t hesitate to get started with Token Raise today.