A year has passed since the TerraUSD and Luna cryptocurrencies suddenly evaporated, triggering a series of industry failures that, in bringing on a heavy bear market, drained away $2 trillion. This was not the first sign of trouble in the sector by a long shot. Back in 2014, the Mt. Gox crypto exchange was forced to close after losing $500 million in a computer hack. Two years later, the value of Bitcoin sunk 20% within a matter of hours after another big hack was pulled off, this time on the Bitfinex exchange. In those years, digital currency was also growing popular in criminal circles as a way of sending money around the world without leaving any traces in the traditional financial system. The decentralized nature of cryptocurrency, which was always lauded by its enthusiasts, also left it vulnerable to unethical actors of various kinds.

The question we face now is whether or not official regulations, which are starting to be formulated and set in place, have the power to solve the various problems in the industry and introduce some much-needed stability. When the European Parliament approved MiCA (the Markets in Cryptocurrency Act) in April, a big step in the right direction was taken. Join us now, especially if you have an interest in CFD online trading with crypto, as we consider how much impact the new legislation in Europe and elsewhere is likely to have, and what it could mean for the future of the industry.

MiCA’s Potency

MiCA ensures that anyone who wants to issue digital tokens or operate a crypto exchange will have to submit to close supervision by authorities. Stablecoins like USDC and tether will have to show they have plenty of financial reserves to deal with sudden, mass withdrawals. In addition, any platform that fails to properly protect its clients’ interests or does something to threaten the general stability of the system could find themselves shut down by the European Securities and Markets Authority (ESMA). More than that, the prized anonymity of crypto transactions will be compromised by the Transfer of Funds act, which brings the identities of both senders and receivers out into the open in order to combat money laundering.

Would MiCA have saved the FTX exchange from its November meltdown? To some extent, yes, in the opinion of Alexandra Jour-Schroeder of the European Commission, who suggests that, “Under the MiCA regime, no company providing crypto assets in the EU would have been allowed to be organized, or perhaps I should say disorganized, in the way FTX reportedly was”. This is good news for the sector because, for Jour-Schroeder, FTX’s collapse was not a malfunction “of blockchain tech or even crypto assets per se”, but rather had to do with company practices that can be corrected.

Putting a Name on a Hacker

There’s also hope that law enforcers could become more effective in dealing with hacks like the ones on Mt. Gox and Bitfinex. After the Bitfinex hackers stole 119,754 Bitcoins, they held them in a private wallet for several years, but when they tried to cash out by moving the funds into the traditional financial system, authorities were able to connect the currency to real people and make arrests last year. Indeed, the public, immutable nature of the blockchain made the investigation smoother than it would have been. “To me,”, remarked Ari Redbord or TRM Labs, “this case says to the policymakers [in Congress] that law enforcement has the tools, the training and the ability to follow the flow of funds in crypto”.

 

The Road Ahead

Looking more broadly around the world, we see Hong Kong is expected to deliver up some regulations of their own by Springtime, striving as they are, together with Japan and Singapore, to turn themselves into a crypto centre for the Asia-Pacific region.

South Korea – home to Terra’s Do Kwon and two more crypto lenders who recently froze client withdrawals – gave the nod in June to a bill that will aim to protect traders in the sector. The Virtual Asset User Protection law will clamp down on firms who misuse client data, but also on those who are found guilty of market manipulation. Some firms in the space have criticized the new laws for potentially suffocating the industry, rather than securing it.

Over in the UK, formal regulations could take up to a year to emerge, while, in the USA, authorities have yet to formulate a unified approach to the issues in the sector. The US Securities and Exchange Commission (SEC) are still struggling to define digital assets but they have taken steps to stop banks from forging connections with crypto firms.

No doubt, in the months ahead, we’ll see the crystallization of the various efforts around the world at securing the industry. And we have seen ample reasons to believe that good regulation could effectively turn the crypto industry into a safer place for all. You can start online trading in cryptocurrency price changes, whether up or down, on the celebrated iFOREX trading platform. Start by looking through the iFOREX website and learning about the platform’s special tools and features.