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Regulators need to improve their risk assessment of the cryptocurrency sector, the G20-sponsored Financial Stability Board (FSB) said on Friday. The global financial watchdog expressed concern over the current state of regulations over the crypto market, saying that the regulations are patchy at best. In a report for G20 finance ministers and central bank governors, the FSB warned that quick technological change could lead to serious gaps in policies on digital money.
Regulators across the world have been struggling to come up with fair and comprehensive rules and regulations to govern the cryptocurrency market. Coming up with legislation that protects investors from fraud and manipulation without placing hurdles in the path of innovation and technological advancements has proven a difficult task for the regulators.
That’s not to say that the regulations have been lax in any sense of the word. Many big countries like China, Japan, Russia, and even the U.S. to some extent, have been very conservative in allowing cryptocurrency and blockchain projects to spread their wings. What’s brought forth this global scale scolding from the FSB for these regulators is the fact that their conservatism has ended up hindering the path to progress in the field and doing nothing to protect the investors.
Regulators should work to foresee risks in the emerging industry that could impact financial stability, the FSB said. The report suggested that an assessment of banks’ and other financial firms’ exposure to digital money was one potential path to take. The global watchdog also said in the report that digital coins did not currently present a material stability risk. Even though global bodies including the Organisation for Economic Co-operation and Development and the Basel Committee on Banking Supervision are looking at cryptocurrencies and investor protection, financial stability, terrorism funding and money laundering, rules are diverse across different jurisdictions.
Lack of Regulatory Consistency in the Global Cryptocurrency Market
The FSB said that cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) often fall outside the jurisdiction of market and payment watchdogs. Lack of global standards for these digital currencies is to blame according to the report. Furthermore, quick technological change meant the “risks associated with crypto-asset markets and the level of significance of potential regulatory gaps will keep evolving,” said the report.
This report by the FSB comes at a time when Bitcoin is starting to show signs of another bullish run like that one of 2017 when frenzied retail buying saw it approach $20,000. That bubble burst soon after in early 2018 and Bitcoin lost over three-quarters of its value. The current rise in Bitcoin’s price has captured the interest of investors once again and market experts think that we are once again setting upon the same journey like the one in 2017.
The only thing that can prevent the otherwise inevitable outcome is a comprehensive and all-encompassing sensible regulation effort that protects investors from market manipulation and fraud.