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Coinbase CEO Brian Armstrong has cautioned; cryptocurrency markets require regulation to prevent further washouts like FTX

One of the largest cryptocurrency exchanges in the world up until recently, FTX, filed for bankruptcy on Friday after revelations about its operations caused a spike in customer withdrawals, which were not covered by available cash.

Although Coinbase has no direct financial exposure to FTX, I feel very sorry for everyone who is now involved. In our industry, it’s stressful whenever there’s a chance of losing a customer, and FTX’s problems are costing a lot of people a lot of money.

Additionally, it’s critical to understand why this occurred and what must change if we hope to stop something similar from occurring in the future.

The demise of FTX appears to be a result of hazardous, immoral business practices, including decisions to lend customer assets without consent and conflicts of interest amongst intricately entwined organizations. It’s important to note that these activities also take place in conventional financial markets. In fact, blockchain technology will eventually make it simpler to track and prosecute these activities.

Following this week’s events, there are already calls for stronger regulations on access and innovation in the crypto business. The issue is that, up to this point, American regulators have declined to offer crystal-clear, sane rules for cryptocurrencies that would safeguard consumers.

Regulators have so far been unable to offer a practical framework for how these services can be provided in a secure, open manner. Crypto regulation in the U.S. has proven to be difficult to navigate.

This implies that a wide range of financial products based on cryptocurrencies, such as lending, margin trading, short selling, and other instruments, which are entirely legal and regulated in traditional financial markets, are all but illegal in the United States. Entrepreneurial teams creating new decentralized products are hesitant to do so outside of the United States due to the risk of legal action. They don’t want to violate the laws, but they are currently unaware of the laws.

Due to this, both sophisticated traders and American customers have been using dangerous, offshore platforms without the oversight of any protection from U.S. regulators. Today, foreign exchanges account for approximately 95% of all cryptocurrency trading activity.

Due in part to its location in the Bahamas, a tiny island nation with scant regulatory oversight and authority to monitor financial services firms, FTX was able to pull off what it accomplished. Did regulators compel FTX to act in the manner that it did? No. However, they did establish a scenario where FTX might do risky actions without suffering consequences.

U.S. regulators have prioritized regulation by enforcement, going after U.S.-based businesses for breaking the laws without actually clarifying what those rules are, rather than establishing explicit regulations for cryptocurrencies. When the SEC accused Coinbase of listing unregistered securities earlier this year—a charge we vehemently refute—the firm became a victim of this behavior. When foreign companies fail, it hurts both the American people who lose money and the competitiveness of the United States.

All of this explains why stricter regulation will just exacerbate the issue of cryptocurrency businesses and users moving abroad. Instead, we require more intelligent regulation that safeguards consumers and makes the United States more desirable as a location for crypto businesses to thrive.

Despite the widespread perception that cryptocurrency companies oppose regulation, the majority of them have been collaborating with legislators for years. The future of cryptocurrency is important to those of us who wish to establish sensible legislation for centralized exchanges and custodians in the United States and other countries.

Long-term, the cryptocurrency sector has a chance to create a better system by utilizing self-custodial wallets and decentralized finance, which don’t rely on trusted third parties like exchanges. Instead, users will be able to trust math and programming, and everything on the blockchain may be openly auditable. Regulators must, however, create clear guidelines now in order to bring cryptocurrency back home, promote innovation, and safeguard consumers.

The United States has traditionally taken pleasure in being at the forefront of emerging industries and technologies. The moment for cryptocurrencies has come with more than 200 million users worldwide, countries starting to test out digital currency initiatives, and the acceptance of bitcoin as legal cash.

The United States must now decide whether to lead by establishing clear, business-friendly regulations or risk losing out on a significant force behind innovation and economic equality.

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Written by Newsway

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