Failures Of Cryptocurrency-Related Banks Fuel Regulatory Debate‍

A governmental rush to safeguard customers from scams and fraud has been sparked by recent setbacks, scandals, and high-profile failures in the global bitcoin business.

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The failure of Silicon Valley Bank last week shook the world of finance, and the collapse of US crypto lenders Silvergate and Signature, just months after the insolvency of problematic crypto exchange trading platform FTX, had a significant impact on the digital currency market.

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Authorities are more eager than ever to keep an eye on a sector that flourished when the Covid epidemic hit and many people were confined to their homes.

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Although it has increased significantly in recent months, the global cryptocurrency market is still far behind the $3 trillion peak from 2021, where it is currently valued at over $1 trillion.

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The number of cryptocurrency users "increased during the Covid lockdowns," according to Martin Walker, head of banking at the Dutch-based Center for Evidence-Based Management, in an interview with AFP.

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Walker, who organized a London meeting of cryptocurrency detractors last year, said, "They entered an unregulated free market, investing with significant risks but not realizing they were dealing in unregulated but not (always) legal assets.

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He maintained that due to their distinct position, trading platforms were conflicted.

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Walker continued, "They do have a conflict of interest (...) as owners are simultaneously taking risky bets in cryptocurrency and marketing these assets to their customers.

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"Many are unaware that conventional financing does not permit this,"

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Authorities also want control over these platforms since they connect users with the complicated world of cryptocurrencies, regardless of their background or expertise.

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These trading platforms serve as the "connection between what is likely to be a very technically sophisticated world, both in regard to finance and technology, with a populace that is untrained and not very well informed," according to Ludovic Desmedt, an economist at Bourgogne University, who spoke to AFP.

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In addition, unlike traditional currencies, stocks, or commodities, the value of cryptocurrencies does not depend on open markets, which further complicates the situation.

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As a result, according to specialized crypto firm Chainalysis, the value of illicit cryptocurrency transactions more than tripled last year to close to $21 billion.

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However, some unlawful uses, including drug trafficking, are not included in this estimation.

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The United States is developing a framework to regulate cryptocurrency companies, but in September the White House asked regulators to follow the same legal guidelines as those that apply to other financial service providers.

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Genesis and Gemini were sued by the Securities and Exchange Commission (SEC), a market regulator, as a result.

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In addition, the SEC ordered cryptocurrency company Paxos Trust to stop creating the stablecoin BUSD, which is pegged to the dollar and is issued for Binance, the largest trading platform in the world, in February.

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Draft legislation from the European Union will require cryptocurrency platforms to operate with greater discipline and transparency starting in 2019.

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In order to keep up with the EU and the US, the British government introduced a survey this year to create a legal framework for the industry.