Is it high time to regulate cryptocurrencies?

• Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, pleaded guilty to money laundering violations on Tuesday.
• This has raised a fresh debate on the need to regulate cryptocurrencies.
• Zhao will now pay a $50 million fine and face up to 18 months in prison under federal sentencing guidelines.

If anything, the recent Binance’s Changpeng Zhao (now ex-CEO) stepping down saga has taught us that the cryptocurrency exchange is in its infancy when it comes to regulatory and compliance matters. While the market has evolved over the past two decades, the exchanges are yet to get on the right side of the laws. This has now led to growing calls to regulate cryptocurrencies.

It was in 2021 when Binance, FTX, Kraken, and Bittrex witnessed increased transactions during the crypto bull run. By 2023, FTX will have collapsed, Bittrex will have shut down, and legal actions are pending against Kraken and Binance. Changpeng Zhao, the founder of Binance, the largest cryptocurrency exchange in the world, pleaded guilty to money laundering violations on Tuesday. Considered to be a stunning blow, CZ, as he called, has pleaded guilty and agreed to pay $4.3 billion in fines and restitution to the government, according to federal authorities.

Under the agreement, Binance reached settlements with the Justice Department, the Treasury Department and the Commodity Futures Trading Commission, which have all been investigating the company for years. Zhao will now pay a $50 million fine and face up to 18 months in prison under federal sentencing guidelines.

Will the cryptocurrencies be regulated soon?

This has raised a fresh debate on the need to regulate cryptocurrencies soon. In fact, cryptocurrency regulations were one of the critical discussion points during India’s presidency at the G20 Summit. During the G20, the leaders and policymakers unanimously discussed digital currencies’ potential risks and benefits, recognizing the importance of balancing innovation and consumer protection.

For this, the policymakers urged expediting the Crypto-Asset Reporting Framework (CARF) implementation and amendments to the ‘Common Reporting Standard’ (CRS). CARF not only provides the template for reporting tax information on transactions in crypto assets in a standardized manner but also brings in crypto transactions that are by Indians on foreign-domiciled crypto exchanges under the reporting framework.

This is where something like a Markets in Crypto-Assets (MiCA) regulation proposed by the European Commission could stand as a beacon of comprehensive and forward-thinking regulatory framework. With exchanges unable to protect the market participants from fraudulent transactions or the risk of shutting down, MiCA emerges as a potential template, offering insights into how jurisdictions worldwide can approach the challenges and opportunities presented by the burgeoning crypto space.

Support required to ensure implementation

MiCA and the G20 findings could go a long way in establishing clear guidelines for entities operating in the crypto space. Still, the policies must be stringent, and culprits are appropriately punished to ensure that only well-regulated and trustworthy entities can participate. This will go a long way in promoting market integrity and investor protection, fostering innovation, and mitigating risks.

As the global community seeks to harness the benefits of cryptocurrencies while mitigating associated risks, only proper compliance can ensure that future of this sector. As the crypto space continues to evolve, the lessons learned from MiCA can guide regulators in shaping a regulatory landscape that fosters innovation, protects investors, and ensures the long-term sustainability of the cryptocurrency market.