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Technology | BlockChain & Cryptos

2023: Putting the Cuffs on Crypto

Jan 01, 2023   •   by Joseph Agboola   •   Source: Proshare   •   eye-icon 375 views

Cryptocurrency regulation was a hot-button issue in Q4 2022 as cryptocurrency exchange FTX went belly up. With a forensic review of how crypto exchanges are managed and how cryptocurrency valuations are achieved, 2023 will throw up a slew of new rules that set the standard for how digital registers work in financial markets.

 

Analysts have been quick to point out that cryptocurrencies may not become an extinct specie of payment and settlement but they will be less freewheeling. Governments around the world have taken a closer look at cryptos and some have designed or are designing policies to guide their use and operations.

 

The main crypto concerns have been market volatility, lack of transparency, anonymity, and poor exchange governance. The collapse of the world’s third-largest crypto exchange, FTX, and the subsequent plunge in the prices of Bitcoin, Ethereum, and other major crypto assets, has prompted calls for greater consumer protection and regulation.

 

With proper cryptocurrency regulations in place, partnerships could be promoted between crypto exchanges and other businesses. It could make the cryptocurrency market safer for traders and investors by preventing market manipulation. The lack of concentrated regulatory power contributed to the fraud and money laundering cases experienced recently. For example, Bitcoin, which traded at US$60,000 in 2021, dropped to US$20,679 in early October before the FTX saga due to a lack of information. With less speculation in the market, investors confidence would be boosted.

 

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Nonetheless, investing in cryptocurrencies comes with a significant risk. In November, an unknown hacker, “FTX Accounts Drainer”, converted a whopping 400bn SHIB valued at US$3.9m from the hacked FTX funds to 2,346 ETH valued at US$2.96m, resulting in an approximate loss of US$1m in the process. Considering the time and ease of access the account drainer achieved, moving money from multiple parts of the company, there is a possibility that the hacker had links with an insider. In this light, there is a need for international collaboration amongst governments to protect businesses and the investor interest. They need to set rules and bring issuers and intermediaries of cryptocurrency securities into compliance (see illustration below).

 

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In the last few years crypto assets have been used to avoid government sanctions and facilitate illicit payments. Celebrity endorsements of cryptocurrencies and crypto exchanges have equally become commonplace, with the likes of Kim Kardashian, Floyd Mayweather, and others making endorsements. They have promoted everything from cryptocurrency exchanges to NFT projects and even new risky coins. Analysts suggest the introduction of a mechanism for payback, where investors can get refunds if they lose money to unfair practices.

 

Expectations are that in 2023 rules will provide oversight for crypto market activities, with various countries deciding how tight the screws will be turned.

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