What Crypto Needs to Learn From Traditional Finance Regulators

We’re finally seeing the actualization of this mainstream crypto adoption thanks in large part to traditional finance.

Mainstream crypto adoption is the “holy grail” of concepts throughout the cryptocurrency industry and has been for its entire decade-plus of existence.

Now, more than any other time in history, we’re finally seeing the actualization of this mainstream crypto adoption thanks in large part to traditional finance.

Long thought to be the enemy of cryptocurrency, traditional financial institutions have started to warmly embrace the technology, resulting in a sharp increase in various cryptocurrency prices throughout 2020 and 2021.

Due to traditional finance company’s experience with regulation, willingness to adapt, and of course, their large bank accounts, it’s never been more obvious that crypto needs to build a bridge with the old world if it ever wants to see global mainstream adoption. 

Traditional finance embrace still limited without strong regulation

Perhaps one of the most surprising parts about cryptocurrencies’ rise over the past couple of years was the major shift in attitude from traditional finance institutions.

After spending nearly a decade bashing the technology with countless headlines, global brands have done a complete 180-degree turn.

Not only are they saying positive things about cryptocurrencies like Bitcoin, but they are even going public with future plans of their own to adopt blockchain technology. 

For example, long-time crypto critic J.P. Morgan announced plans to create its own digital coin for payments between institutions’ clients. PayPal introduced the ability to buy crypto via its platform.

Fidelity launched its own digital asset division and of course, Tesla stole headlines across the world when they announced it will add Bitcoin to its balance sheet.

While the last example wasn’t from traditional finance per se, it is just another point that validates blockchain technology and showing how cryptocurrency is a vital part of strategic investments. 

Furthemore, we’ve seen Wall Street fully embrace cryptocurrency unicorns who aim to use public equity markets to begin their next stages of growth.

Popular cryptocurrency exchange Coinbase for example launched publicly traded shares on the Nasdaq market using the name $COIN. On its first day of public trading, COIN valuation reached over $80 billion.

This landmark moment is just further evidence that building a bridge between traditional finance and the crypto ecosystem can be productive and profitable but the lack of regulation is still something holding us all back.

Does Switzerland hold the key to “regulation done right?”

With the complexity of blockchain technology and growing concerns that regulation will stifle its innovation, there is an ongoing debate between traditional finance and crypto loyalists. 

One side seems to think crypto dies with regulation while the other thinks it can’t survive without it. However, one can’t deny that without some sort of regulation, the future of cryptocurrency looks bleak.

Always famous for its neutrality, the county of Switzerland finds itself smack in the middle of this argument.

Switzerland is a country known for its efficiency and creative regulations that don’t sacrifice innovation. That’s why countries around the world have looked to them for guidance on how to handle this new technology.

Leading the charge of Switzerland’s cryptocurrency industry is the nation’s very own Crypto Valley Association. Ilya Volkov, The CVA’s Western Chapter Chair and the CEO of FinTech platform YouHodler shares his direct experience operating a cryptocurrency startup in Switzerland. 

“Crypto Valley often gets compared to Silicon Valley due to their high levels of innovation however, there are a few reasons why Crypto Valley reigns supreme, especially in the realm of cryptocurrency. In my experience setting up YouHodler in Switzerland, I’ve noted the Swiss government is incredibly democratic, liberal, and decentralized. That’s why I think they were so quick to embrace blockchain technology since they already had a firm understanding of how a decentralized network works via its Cantonal government. Compared to Silicon Valley, where American regulation actually hurts innovation, Swiss regulation is actually a fertilizer for us here in Crypto Valley.”

In 2020, the Swiss government passed a legislative package that changed more than a dozen financial laws to encourage blockchain startups to come to Switzerland and set up operations.

The new changes, spearheaded by the Swiss Federal Council removed a variety of legal barriers to blockchain applications without having to amend any existing tax laws in regards to blockchain technology. 

Instead of increasing barriers and regulations on new technologies like many other countries have done with blockchain, Switzerland instead prefers to try using existing laws to see if they work.

If they fail, Switzerland then changes the law to create something that allows for the healthy growth of new technology while still maintaining law and order.

Having an open-minded approach to existing laws and being flexible with new laws is exactly what such a new technology such as blockchain needs to expand rapidly. Standing in the way of this occurring on a global scale could be the rapidly popular DeFi movement. 

Is Decentralized Finance (DeFi) helping or hurting mass adoption?

Decentralized Finance  (DeFi) is widely regarded as one of the main catalysts towards crypto adoption in 2020 and 2021. The rebellious nature of DeFi looks to “bank the unbanked” and offer financial services that trump those found in traditional finance.

DeFi platforms offering astronomical interest rates, nonexistence barriers to entry for loans, and currency exchange may seem attractive at first. However, are they doing more harm than good?

Many of these DeFi platforms are anonymous by design, making them fertile ground for money launderers, fraud, and cybercrime.

For these reasons, many are calling this current bull run the “DeFi bubble” due to the belief that DeFi may come crashing down just as ICOs did three years prior.

While all the hype surrounding DeFi platforms is certainly good for free press, the lack of regulation surrounding these platforms is worrying. 

“In its current form, DeFi is not sustainable,” added Mr. Volkov. “This is why we’ve chosen to keep YouHodler mostly centralized and transparent. It allows us to operate in countries with favorable regulations for our innovation while also keeping our clients protected by some of the strongest laws in the world. No one knows where these DeFi platforms are based or who is behind them. Sure, YouHodler’s 12% interest on stablecoins is not as high as the DeFi platforms out there but what we can offer you is security, trust, and efficiency all backed by Swiss and EU laws.”

There have already been several accounts of DeFi scams, “rug pulls,” pump and dump schemes, and more.

Judging by history, global regulators like the Securities and Exchange Commission (SEC) in the USA and generally don’t let these sorts of activities.

Lack of regulation is the number one reason for greed and negligence

What many cryptocurrency loyalists fail to recognize is that the criminals behind these major Wall Street collapses exist due to a lack of regulation.

For example, the 2008 bank crash that led to the Great Recession was caused by a few savvy individuals that explored a major unregulated loophole in the system.

In fact, the very word “regulation” comes from “regular,” the exact opposite of the madness and chaos we’ve seen in the early years of cryptocurrency.

Financial ecosystems only thrive if there is a consistent level of control and functionality. 

We need a universal language that makes digital assets easy to understand and categorized.

Regulations like the FATF’s crypto travel rule for example will help divide the crypto world into regulated and unregulated assets that will better help us identify the good from the bad.

This sort of clarity will make the market much more attractive to institutional investors and also everyday people like your mom and dad. 

Ultimately, the benefits of regulation from traditional finance far outweigh the benefits of the “wild west” crypto world we’ve been living in. It’s time to build a bridge between the old world and the new world.

Both sides have something to learn from one another and the longer they stay separated, the longer the world is kept from building something unique and life-changing.

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