- Exchanges need to ensure trust and security for better user interaction.
- There is a constant communication process between exchanges and regulators as dynamics are constantly shifting.
- Institutions want better-regulated exchanges since they trade with higher volumes than retail users.
The prevailing notion among the media is that regulation will enable cryptocurrencies to grapple the market as a theoretical framework would combat their volatility. High volatility is a trademark of cryptocurrencies and is what makes them so appealing to investors, thus regulatory input would indirectly aid in enhancing market liquidity. Regardless, any regulatory input will directly affect current market practices.
Meeting Regulators Halfway
In an exclusive interview with DailyCoin, Ben Caselin, AAX’s head of research and strategy, has discussed the regulator-exchange dynamics that apply to the current state of the crypto space. In his view, every trader’s typology is different. He claims that “institutions need a regulated exchange; they need very solid custody structures, they need to be able to trade with high frequency.”
In that regard, regulatory frameworks are essential for enticing capital into the market. In 2017 the CEO of BitSpread, Cedric Jeanson, emphasized that high volatility is due to low market liquidity on the exchanges. However, regulators don’t always seek to better the market, as stated by Caselin:
"We did not expect a global meltdown and [the] sophisticated policies that we have today....and you could say like now is the time for more regulation [of exchanges], and you could say that's the answer." Still, Caselin stresses the fact that governments, in their role as regulators, are constantly asking questions, “and that’s why they’re shifting” because they still do not know what the right approach is. In the end, as highlighted by Caselin, the entire exchange regulation process is “a negotiation.”
On The Flipside
- Regulators cite industry scams and hacks as the reason to maintain control of the freedom of cash within their countries.
- China may have banned exchanges and other cryptocurrency services just to promote its centralized digital currency.
- Rules around drafting regulatory laws are chaotic, which makes creating a stable system nigh impossible.
- Countries shouldn’t decide things on the protocol level.
Regulators Are Unsure of Their Role
Governmental regulation in the space is both a necessity, and a step back for the market. Arguments about bad actors benefiting from the naivety of investors is an ongoing narrative, but as Caselin highlights, a lot has changed since crypto has gained widespread attention.
"This has been going on for a long time, and crypto is, of course, you know, it's a completely digital industry, so it's part of that. But over the past few years, a lot has developed." Additionally, he stresses that most people are regular users, and the typical practice in the field is to not “act like a criminal.” That said, Caselin underlines that all of the current rulings are beneficial for the market as “it makes sense that we come to standards.” He believes that “it’s all about negotiating those borders together, and, I think, that is kind of the key approach.”
Regulation of exchanges is going to happen regardless of the opposition exchange owners put up. Furthermore, currently exchanges do, in fact, meaningfully engage with regulators by writing letters, and they “do actually have conversations with other partners in this space.” Together, they aim to “negotiate their kind of authority or no authority in the space,” and if they can’t operate in the area, they will do their best regardless.
Still, according to Caselin, “money laundering is not as big of an issue in crypto as it is portrayed,” in fact, regulators are starting to understand that they have to relinquish control, which in turn makes them less enthusiastic about crypto.
Watch the entire interview here:
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