To summarise the approaches to cryptocurrency regulation in 2023, the Bank for International Settlements (BIS), a global banking coordination organization and “central bank of central banks,” has published a bulletin.
Crypto should be banned, isolated, or regulated, BIS states.
The Bank for International Settlements (BIS) noted in its latest skeptical thesis Addressing the risks in crypto: putting out the options that authorities cannot ignore crypto any longer in light of the FTX/Alameda drama.
The recent crypto market turmoil highlights the urgency of tackling the risks. There are different lines of policy action, including issuing central bank digital currencies to encourage sound innovation. #BISBulletin #Crypto #CBDC #Regulation https://t.co/DnI4GXi35X pic.twitter.com/qVDPSWBBwC
— Bank for International Settlements (@BIS_org) January 12, 2023
According to the authors, the FTX crash showed that decentralization in crypto is frequently illusory because most DeFis have centralized control. As a result, the sector still needs to prepare to function independently. The section is vulnerable to several TradFi-related flaws, and the particulars of crypto increase the risks. For retail investors, this means that leaving cryptocurrency unregulated is dangerous.
Several cryptocurrency business strategies turned out to be blatant Ponzi schemes. BIS officers suggest three models (“approaches”) for how governments can handle cryptocurrency. These features and the enormous knowledge gap clients experience seriously impair investor protection and market integrity. They can initially outright forbid cryptocurrency to eliminate all hazards. It will considerably improve financial system stability and safeguard investors from fraud. Bans on cryptocurrency, nevertheless, might be worked around, even if they go against society’s fundamental values.
Are CBDCs real alternatives to banning crypto?
Finally, governments can control cryptocurrencies in a way comparable to how they control conventional financial institutions. Proper regulation will be advantageous to “responsible players.” Finding “reference points” (responsible individuals or legal entities) is difficult due to the DeFi segment’s nature. Before concluding, BIS professionals proposed a few “alternatives” to Web3 that could be just as quick and affordable as DeFi protocols. First, these are new-generation digital remittances frameworks like FedNow in the United States and SEPA in Europe.
Governments can also shield citizens from cryptocurrency threats by introducing practical and user-friendly central bank digital currencies (CBDCs). Thus, TradFi may incorporate the most outstanding features of the DeFi design, such as tokenization, programmability, and composability.
As previously reported by U.Today, BIS acknowledged that the worst “crypto warnings” have come true in the midst of the painful Bitcoin (BTC) price decline and the Q3 2022 collapses of centralized crypto services Celsius, Voyager, and Three Arrows Capital.