From the collapse of Luna to BlockFi, and Celsius to FTX, creating regulations that will form the foundation on how digital assets are handled has been part of the discussion in the crypto industry in 2022.
According to a report by CMC, in 2023 the discussion on regulations will not stop as several proposals and organizations are projected to be more visible. These top proposals and organizations include the SEC and CFTC in the US; MiCA from Europe and CBDCs by central banks around the world.
US – the SEC and CFTC
In the US, two bodies are championing the development of regulations in the crypto industry. The SEC sees the majority of cryptocurrencies as securities and thus wants rules that apply to securities to be effected on cryptocurrencies.
Speaking about moves taken by the SEC towards regulating crypto, the CMC report highlighted that the statement of Gary Gensler, the chairman of the SEC makes a strong point on where the regulatory body stands. “Whereas Gensler sees Bitcoin as digital gold that is not controlled by a central entity, he believes most cryptocurrencies are securities,” CMC added.
According to the report, Gensler has pointed out that the legal actions brought against BlockFi and Ripple are steps the SEC has taken to show that it “will continue to be a vigorous securities regulator”. It is also worth to note that the SEC uses the Howey test, an old Supreme Court principle, to define its stand on cryptocurrencies. The Howey test defines securities as “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
For Commodity Futures Trading Commission (CFTC), the “battle line” for who regulates crypto was drawn when the SEC alleged that numerous digital assets – utility tokens and tokens relating to DAOs – are securities. CMC said that Caroline Pham, the CFTC Commissioner, regarded the assertion as a case of ‘regulation by enforcement.”
CMC added that for CFTC, the definition and regulation of cryptocurrencies should be a debate that involves the public and not a “not in the dark” as the SEC poses. In simple terms, CFTC sees cryptocurrencies as commodities and wants to be the regulator.
To support this, CMC noted that the Digital Commodities Consumer Protection Act introduced by Senators Debbie Stabenow (D-MI) and John Boozman (R-AR) mentions that the CFTC should regulate “digital commodities” which will include cryptocurrencies.
Come 2023, the decision on who regulates cryptocurrencies, what they are called and the laws that will regulate these assets will be top on the list of expectations going forward. This will not only affect the US, but it will also have an effect on other nations.
EU Crypto Regulations Outlook
MiCA will be implemented sooner than later, the CMC report said. Markets in Crypto-Assets (MiCA) is a proposal from the European Commission targeted at managing, regulating, and protecting investors in crypto and other digital assets in all European Union states. It was released in 2020 but has not been implemented.
According to the CMC report, it will be of advantage if the crypto industry adopts the MiCA proposal as it can “provide needed legal clarity for companies that want to set up shop and provide services to those almost 500 million EU citizens”.
While there are requests around the world for the MiCA to be implemented as soon as possible, the European Commission wants to first fully adopt MiCA before proceeding to have a MiCA 2. CMC explained that for Europe, implementing the MiCA will help avoid any mishap that will affect her citizens who use crypto just like the FTX incident.
CBDC and Central Banks Insight Into 2023
Another aspect of digital asset regulations highlighted by the CMC report is CBDCs and the stand of central banks versus private institutions on how they will be issued and managed. “In 2023, more Central Banks will therefore be willing to consider directly holding accounts for citizens on their books,” CMC added.
As CBDCs are implemented, CMC explained that it will require new and improved accounting systems, new policies, and customer verification processes. There will be an open debate on how CBDCs will function in 2023 “with private players taking a more aggressive approach to staking their ground”.
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