The head of the American crypto exchange Coinbase, Brian Armstrong, has published his plan for regulating the cryptocurrency market. According to him, the simple steps proposed by him will be appropriate both in the United States and in the financial markets of other countries.
It is best to first clarify the regulation of centralized participants in the cryptosphere: issuers of stablecoins, exchanges and custodians, because this is where the greatest risk of harm to consumers exists, Armstrong believes. He explained that regulation in traditional finance is organized around ensuring the honest and correct work of intermediaries, and the same principle makes sense for the crypto market.
For issuers of stablecoins, Armstrong sees the need for official registration, confirmed reserves, a thorough annual audit, compliance with cybersecurity standards and maintaining a blacklist for sub-sanctioned addresses.
For centralized intermediaries, such as exchanges and custodians, the CEO of Coinbase proposes to introduce reliable KYC/AML procedures, establish a licensing regime, require strict consumer protection rules and prohibit market manipulation, flushing trading, in which a trader repeatedly buys and sells the same asset within a short period of time, trying to mislead other market participants regarding the price or asset liquidity, and other forms of misconduct in the market.
According to Armstrong, it is especially important to determine which crypto assets are commodities and which are securities. The CFTC and SEC have been discussing this issue in the US for several years, but unfortunately they have not provided any clarity. According to him, the US Congress should intervene and adopt appropriate laws.
Congress should also require that the CFTC and SEC clearly publish their classification of the top 100 crypto assets by market capitalization within 90 days of the entry into force of the above legislation. Regulators should indicate whether each asset is a commodity, a security or something "different" (for example, a stablecoin), the head of the exchange believes.
Armstrong also noted that one of the problems is that regulators and law enforcement agencies are focused on their domestic markets. Basically, they do not have an international mandate or the ability to regulate offshore companies, which leads to multimillion-dollar losses, as was the case in FTX.
The role of financial regulators should be limited to centralized cryptocurrency participants, where additional transparency and disclosure of information is required, Armstrong believes. As for decentralized services, transparency is built in by default in the network world, the Coinbase founder notes.
In conclusion, he admitted that the biggest obstacle to solving the problems of the crypto industry, in his opinion, is politics. Some regulators don't want clarity on the regulation of cryptography because they are actually trying to restrict the industry. Tough rhetoric and regulation by law enforcement agencies without creating clear rules that everyone should follow pushed most of the industry outside the United States, which led to damage to American investors and businesses, Armstrong is sure.
In early December, the CEO of Coinbase said that the company's revenues would be halved or more this year, because the decline in cryptocurrency prices and the collapse of FTX undermined investor confidence. However, despite this, he will continue to support the interests of the industry in the US Congress, and believes that laws concerning cryptocurrencies can be adopted within the next year.