Matt Smith, CEO and co-founder of compliance technology and data analytics firm SteelEye, has called for digital asset regulation instead of ‘just letting crypto burn’.
The statement was made amid the fallout from FTX’s collapse as more questions are being posed within the longstanding debate about crypto regulation.
“Crypto regulation is in the news again following the collapse of FTX, and it remains an enormously complex challenge. On the one hand, regulators argue that the laws governing securities, exchanges, brokers, funds and advisers should apply to crypto, and on the other, industry commentators believe that regulating crypto like stocks and bonds would award it with “undeserved legitimacy”, or a regulatory “seal of approval” arguing that we should “just let crypto burn.
Protect retail investors and prevent systemic risk
“Crypto regulation is of course a responsibility that needs to be taken seriously by regulators worldwide and we welcome debate around the future of the market, however, leaving crypto unregulated would be a grave mistake. With the uptake of crypto among retail investors and financial institutions (particularly in asset management), the ripple effects of simply letting it be would have far reaching consequences.
“Regulation should do two things – protect retail investors, and protect the system, to prevent systemic risk. If we don’t regulate this space retail investors will continue to be hurt, as will the hedge funds and asset managers that have engaged with crypto so far. We have already heard of multiple managers with large portions of capital tied up in FTX. If we don’t intervene, we run the risk of seeing this happen again and again. FTX was, after all, regarded as one of the most stable and legitimate crypto exchanges, alongside Binance.
“Regulating crypto might “legitimize it” and encourage more institutions to invest in this volatile currency. However, on the buy-side, this is already well underway. Abandoning the mission to regulate what is currently the wild west of crypto finance is unlikely to change the status quo. We envisage a world in which regulation is sufficiently sophisticated, to protect retail investors and make crypto a more stable investment for financial institutions. That way, we can protect the system as a whole, before too much damage is done.”