A crypto regulator is being called under circumstances which allegedly state that crypto is an unchecked industry.
Like many others, I watched a House Financial Services Commission hearing last week in which six crypto executives identified the Congressional industry as a turning point for the industry in the United States. Dialogue is collegial and constructive, based on a real desire to talk to one another and not to disagree. The discourse dispels a number of myths, including the misconception that cryptocurrencies are currently unregulated. It felt like a big step forward for everyone.
As such, I am concerned about recent calls for a single centralized regulator for the crypto industry, fueling the false story that crypto is unregulated and therefore needs a new regulator. As we try to build on the encouraging impetus of the recent congregation, it is important to carefully consider the tradeoffs associated with this idea.
The current cryptocurrency rules are scattered. This is called patchy and fragmented. You can even say that it is decentralized. Certainly not perfect. But it allowed the crypto industry to emerge, grow and mature. The role of New York State (my former employer) in managing space is an example. Therefore, it is worth considering the tradeoffs involved in moving from the chaotic system we have today to a single, autocratic regulator.
It is worth considering several points:
- First, in practice it will take a long time to switch to a regulator. Legislation will likely be needed. Regulators must then write rules and listen to public comments. Personnel must be hired. Only then will the difficult restructuring of the organizational structure of our regulatory system begin, a process that could take years. Given the speed at which cryptocurrencies are moving, it will be a drag on US competitiveness to do so.
- Second, and more strategically, today's systems optimize choice and flexibility, not security and efficiency. This is the right compromise for a young industry in its early stages of development. It's hard to find your way around the many different federal and state agencies, but there are advantages to the madness. This provides fertile ground for experimentation and testing.
- Third, centralized regulators such as "judges, jury and executioners". As a former regulator, I know how easy it can be to go wrong, especially when it comes to new and emerging business models and technologies. Bringing all regulators and institutions together in one place is risky for everyone, both consumers and industry. While there are some benefits to large tenants, it will not be good for the ecosystem as a whole.
Finally, today's multi-regulatory landscape has important consumer benefits. This allows multiple police officers to be in rhythm and creates a healthy and protective over-regulation. When regulators or law enforcement agencies ignore or ignore market issues, there is a greater chance that someone else will catch them. The system now allows state regulators to adopt a regulatory approach that best suits the local populations they serve.
Some people make the mistake of assuming that regulators are more independent and impartial than they really are. If this year - including last week - has shown us anything, it must be the realization that priorities and highlights can change dramatically with changes in administration and management. A multi-regulatory system reduces the impact of this risk. For an industry that values decentralization, the benefits of avoiding a single point of failure should be clear.