Ironic as it might sound, black swan events have change into an everyday occurrence within the crypto space this 12 months. Most recently, the collapse of FTX — which, at its peak, was the third-largest crypto exchange by volume — has shaken up the markets.
As its mismanagement of funds got here to light, FTX was forced into chapter 11 overnight. Its US$32 billion valuation was worn out, causing a ripple effect which continues to unravel in front of us.
Temasek and Sequoia Capital are two firms to have suffered a major loss as they were forced to jot down off a whole bunch of thousands and thousands which they invested in FTX. There are also over 1,000,000 consumers with funds frozen on the platform, and it stays unclear whether or not they’ll have the ability to recoup these losses.
From a regulatory perspective, the red flags keep emerging. Because the start of 2022, the Monetary Authority of Singapore (MAS) has been looking into controlling retail access to cryptocurrency.
This began with policies which disallowed exchanges from promoting to most people. In a recently published consultation, the MAS also considered measures resembling enforcing disclosures and consumer suitability tests.
Restricting retail access to crypto
The MAS has long maintained its stance that cryptocurrency is an unsuitable investment for retail consumers. This 12 months, investors have lost billions of dollars to scams, hacks, and poorly managed firms. Crypto winter aside, even in one of the best of times, the markets have proven to be too volatile for secure investments.
“When the market goes the unsuitable way, I get so many emails to take motion against [the wrongdoings of companies],” says MAS’ Chief Fintech Officer, Sopnendu Mohanty, at Token2049.
It’s a difficult place to be for regulators. In the course of the bull market, they faced criticism for raising barriers. Yet now, they’re facing criticism for not raising them high enough.
“I feel consumer awareness is a giant challenge,” Mohanty continues. “We’ve to repeatedly tell those who this asset class shouldn’t be suitable for retail investors because they only don’t understand.”
All these signs appear to point towards a ban on retail access cryptocurrency. Nevertheless, that’s unlikely to occur for 2 reasons.
First off, enforcing a ban can be more trouble than it’s value. The MAS could prevent crypto exchanges from operating in Singapore, but there’s not much that may be done about DeFi protocols and P2P transfers. Consumers who wish to acquire crypto would still have the ability to accomplish that.
We aren’t outrightly banning cryptocurrency because we’d like a latest form of cash to transact in Web3. That may be a requirement and we must provide for that.
– Sopnendu Mohanty, Chief FinTech Officer, MAS
Next and more importantly, this is able to hinder innovation in blockchain technology — something Singapore has readily been in support of through the years. Consumer adoption plays a key role in allowing firms to construct and experiment.
Striking a balance
Because the MAS looks to guard each consumers and innovators, its regulations must tackle a balanced approach. With bans out of the query, the compromise is adding friction to the crypto onboarding process.
“We’ve put a number of restrictions around advertisements and the method through which crypto may be accessed,” explains Mohanty. “I feel, [in time], people will feel an increasing number of friction in accessing this asset class.”
At Token2049, Mohanty criticises a number of the banners put up by crypto firms. One in every of them reads, ‘the long run belongs to the fearless’.
“Consumers have a look at that tagline and it’s a serious issue for us. We’ve to make sure there’s a certain discipline, so consumers aren’t misled into pondering that they’ve to take a position fearlessly.”
Mohanty maintains that the majority retail investors — even those that’ve bothered to attend this crypto conference — don’t understand the cryptocurrencies which they trade. “Bitcoin was created to unravel the [problem of] cross border payments. I can bet that if you happen to go down this room, only a few people understand [this].”
The MAS may not have the ability to stop crypto trading, but it surely’s doing its part to curb speculation. “If the long run is Web3 and tokenisation, so be it. Nevertheless, we have now to be certain that the individuals who participate out there understand [the real assets behind these tokens].”
Constructing a safer crypto space
Because it stands, there’s an absence of reliability within the crypto space. Even skilled traders have struggled to navigate the market in recent times. “There [are no] sophisticated customers with regards to this space,” Mohanty argues. “No one really gets it.”
Persons are simply speculating on future value. Whether it’s a standard retail customer or a highly specialised trader, I don’t think segmentation has really taken place on this market. Even one of the best players don’t understand this market well.
– Sopnendu Mohanty, Chief FinTech Officer, MAS
This has change into more apparent as distinguished figures resembling Do Kwon — co-founder of Terraform Labs — and Sam Bankman-Fried — CEO of FTX — have come under fire for his or her irresponsible practices while managing their crypto firms.
Reliability and trust must be caused, not only by regulators however the industry itself. “If industry participants don’t take their very own responsibility to repair this, you will notice more regulators stepping in and restricting consumer access to this asset class,” says Mohanty.
He elaborates on the necessity for the crypto ecosystem to evolve and construct risk management capabilities. Secure exchanges, custody services, and analytics platforms all have a key role to play in helping crypto mature.
Featured Image Credit: Token2049
