The IMF gave advice to international regulators regarding cryptocurrencies while influential people from around the world mingled in Davos. Depending on who you ask, regulation of the cryptocurrency market may harm the sector or allow foreign investors access to enormous new markets.
The International Monetary Fund stated in a note released over the course of the week that: “During times of stress, we’ve seen market failures of stablecoins, crypto-focused hedge funds, and crypto exchanges, which in turn raised major concerns about market integrity and user security. In the near future, there might also be worries about systemic risk and financial stability due to expanding and deeper ties with the core financial system.
The IMF’s preferred strategy to address these worries is to strengthen global financial regulation and supervision as well as develop international norms that can be consistently enforced by national regulatory bodies, according to the IMF.
The suggestions are:
1) License, register, and approve companies that offer cryptoassets.
2) Disallow crypto organizations from performing numerous, conflicting tasks within a single enterprise.
3) Govern stablecoin issuers with strict rules akin to those of banks.
4) Place firm restrictions on traditional financial institutions’ exposure to or involvement in cryptocurrency.
5) Develop a unified global strategy for cryptocurrency regulation and oversight.
Even though it seems doubtful that everyone on earth could agree on crypto legislation, the idea of a worldwide regulatory system appears constricting. After all, the primary reason for the creation of Bitcoin was to circumvent the established banking system.
The global financial system, in the opinion of Bitcoin’s developers and early adopters, was the contagion with spillover danger. Regulations failed to prevent a financial crisis that rocked global markets in 2008 and was considerably worse than the crypto winter.
In fact, it’s even plausible that the 2008 financial crisis was caused by financial rules. In the years before that, the central bank controlled the money supply in a dovish manner. This promoted widespread speculative activity using low-interest loans to purchase exotic instruments.
IMF’s Regulation of Cryptocurrencies: Good or Bad?
The same thing happened to Wall Street as it did to Alameda-FTX when the economy’s money velocity churned and revalued each dollar in accordance with the constantly expanding new supply of USD. They were clinging to numerous things that weren’t worth as much as they appeared to be on paper.
A technology as significant as Bitcoin may easily be killed off before it ever gets off the ground by a global regulatory structure with rigid, one-size-fits-all regulations created by committees.
Or you may equally easily be inspired by one and hand over authority to a network governance ecosystem built ad hoc by developers, business owners, and the markets they service.