The Importance of Stringent Regulation in the Crypto Industry

Crypto companies and investors need to be held accountable

One of the main concerns in the crypto industry is the lack of accountability among companies and investors. The recent bankruptcy of FTX has highlighted the potential risks and problems that can arise in this market. However, this is not an isolated incident, and more challenges are expected in the future, according to Rupert Schaefer, the director of BaFin.

As governments around the world work towards implementing regulations in the crypto industry, the next step is to ensure consistency across different jurisdictions. It is crucial to establish clear and stringent policies that can prevent unnecessary crashes and protect both investors and the overall stability of the market.

Schaefer compares crypto companies and investors to unidentified flying objects (UFOs). Just like pilots fear encountering an unnumbered aircraft that does not respond to radio communication or adhere to safety regulations, the same concerns apply to financial markets. Some cryptocurrencies and decentralized finance (DeFi) projects can be compared to UFOs, and it would be naive to ignore them. Understanding and sometimes intervening in these projects can help maintain the financial airspace safely for everyone.

While the impact of the crypto market on the broader financial system is currently limited, Schaefer argues that it could change in future crashes if more companies become active in the crypto world. Therefore, it is essential to establish clear and appropriate rules for crypto markets to build trust and ensure the long-term stability of the industry. BaFin aims to approve only crypto companies with an acceptable business model, sufficient capital, and reliable leadership.

Tightening regulations for Bitcoin and other cryptocurrencies

BaFin’s director expressed his approval of the European Markets in Crypto Assets (MiCA) legislation, which recently received official approval. In the coming year, the new rules established under MiCA will officially take effect, leading to stricter regulations in the industry.

Under these regulations, crypto exchanges will need to comply with stringent anti-money laundering measures, and their customers will be required to go through identification processes. Additionally, stablecoin issuers will be required to have sufficient collateral of the appropriate type.

However, the tightening of regulations for cryptocurrencies does not stop there. The European Parliament recently passed a new law that makes it more challenging to evade taxes using crypto. Furthermore, individuals will be required to disclose the purpose of transactions, similar to bank transactions, and provide information about external wallet addresses.

These regulations aim to enhance transparency, prevent financial crimes, and ensure the legitimacy of the crypto industry. By implementing stricter rules and standards, governments and financial authorities hope to create a safer environment for investors and reduce the risks associated with cryptocurrencies.