As recently as this week, Ether (ETH) topped the $ 4,000 mark, while Bitcoin (BTC), the world’s most popular cryptocurrency, recently hit another all-time high of over $ 63,000. Meanwhile, Dogecoin (DOGE) continues its roller coaster ride after “Dogefather” Elon Musk performed live on Saturday night and news of digital works of art getting staggering prices in the form of non-fungible tokens is all over the air.
Crypto is hot whether you like it or not.
Still, not everyone is convinced. Janet Yellen, the newly minted US Treasury Secretary, previously questioned the legitimacy and stability of the cryptocurrency as a store of value. After all, it was only three years ago that we saw the last bitcoin bubble burst. After a meteoric surge in 2017, with BTC hitting the $ 20,000 mark, a 2018 sell-off cratered the asset, drawing comparisons to “Tulipmania”.
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Bitcoiners have been dubbed “cultists” because of their zealous support for this new, volatile, and arcane technology. But don’t be confused: it’s not just technophiles and eccentric billionaires like Elon Musk who are diving into cryptocurrency. From JPMorgan to PayPal, real Wall Street Bluebloods and Silicon Valley Stalwarts have bought Bitcoin on a massive scale.
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The amount of BTC in circulation is now worth more than a trillion dollars. Most major financial institutions – including investment giants and payment companies – are now supporting cryptocurrency, and interest from retail investors is growing. Bitcoin is becoming an increasingly important part of the global financial system.
At the same time, Bitcoin is still in a regulatory gray area as various governing bodies have put together a patchwork of cryptocurrency rules over the past 10 years. In many cases, this patchwork is not enough to give mainstream investors confidence in the market, as some of the most fundamental principles of cryptocurrency governance are still up for debate. For example, are cryptocurrencies viewed as assets or securities? Well it all depends on who you ask …
What do investors need to know about crypto rules?
One of the big misconceptions about Bitcoin – and cryptocurrencies in general – is that the market is a kind of “Wild West”: out of the reach of regulators and full of scammers, outlaws and crooks. That’s just not true.
Any business that touches consumers in the US and other countries is subject to some form of regulatory standards and rules that also apply to digital assets. There may not be a framework built for cryptocurrencies as we are on the edge of a new, disruptive technology. However, different consumer protection, anti-money laundering, anti-fraud and other rules apply to the various activities. Crypto companies can work with law firms to interpret the rules regarding their business and to adhere to them to the best of their ability.
The current crypto rulebook has been cobbled together over the past 10 years as regulation caught up with innovation. That could change soon, though: The confirmation of Gary Gensler – a former head of the Commodity Futures Trading Commission (CFTC) who taught courses on blockchain technology and cryptocurrencies at the Massachusetts Institute of Technology – as the new chairman of the Securities and Exchange commission (SEC) states that the current administration will treat digital assets seriously and seek to provide comprehensive prudential and regulatory guidance for this emerging market.
Gensler has indicated he is waiting for Yellen’s review of crypto to complete before adopting a digital currency regulatory agenda. Meanwhile, Congress is also taking a closer look. Last month, lawmakers tabled a bill to create a working group of industry experts and representatives from the SEC and the CFTC to assess the current legal and regulatory framework for digital assets.
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It’s hard to predict what we’ll see in the near future in terms of cryptocurrency regulations and the different business models in the industry. However, we have noticed that regulators are becoming more sophisticated and constructive as they recognize their duty to actively protect consumers, promote innovation and create a positive business environment.
How can institutional investors trust crypto companies?
Given the multitude of crypto firms that have popped up against this confusing regulatory backdrop in recent years, it’s important for institutional investors to understand the pitfalls to avoid when choosing a partner to entrust their digital assets to. It is important to understand how the company is regulated, information that should be publicly available on its website and should be checked on the regulator’s website.
In addition, it pays to understand each business model, as not all companies are created equal. The basic concept of the return payment may look the same, but the risk profile can be very different. If a company is not transparent about how it operates and generates income this should be a cause for concern, and if interest rates differ significantly from those of its competitors, I think it is important to understand why. Always read the fine print!
Some companies may choose to work in jurisdictions known for their lighting control. However, circumventing supervision is at the expense of confidence-building and long-term business. Any company worth working with will take a proactive and cooperative stance with regulators. Navigating a complex landscape can be expensive for startups, but it is part of the cost of building long-term value.
Cryptocurrency lenders who want to be at the forefront of the digital revolution must accept the upcoming regulatory overhaul and welcome dialogue with regulators. Investors should seek partnerships with companies that value transparency, compliance, expertise and fairness.
This article does not contain any investment recommendations or recommendations. Every step of investing and trading involves risk, and readers should do their own research in making their decision.
The views, thoughts, and opinions expressed here are the sole rights of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Camilla Churcher is the global head of business development at Celsius Network. Camilla has extensive experience in traditional financial services, Wall Street companies, and fintech startups. After completing her Masters at the University of Edinburgh, Camilla began her financial career as an analyst for Morgan Stanley and later for Citigroup. Most notably, Camilla was Director of Prime Derivatives Services at Credit Suisse before becoming Director of Prime Brokerage Sales at Bank of America. Before she came to Celsius, she most recently worked as sales manager at LGO, an institutional exchange for digital assets.