The Case For Cryptocurrency Exchange Regulation And A Mature Approach To Interventionist Policies
By Aubrey Hansen
In a recent statement, the Saudi Arabia Monetary Authority has reiterated its ban on cryptocurrency trading activity in the region. Despite earlier warnings, certain companies are still operating and claiming legitimacy, though this is not the case.
Cryptocurrency Trading Bans
According to the statement from the Saudi Arabia Monetary Authority –
“The standing committee warns against trading in the digital currencies or what is known as virtual currency for their negative consequences and high risks on traders as they are out of government supervision. The committee assured that virtual currency including, for example but not limited to, the Bitcoins are illegal in the kingdom and no parties or individuals are licensed for such practices”
Other regions, such as South Korea and China, are known for taking hard stances on cryptocurrency exchanges. However, a unilateral ban on cryptocurrency trading is a cause for concern, and could ultimately hurt the countries where it is implemented. In many cases, the ban simply does not work. The regulatory crackdowns usually correspond to an increase in interest in cryptocurrencies, as evidenced in Iran and Turkey. In China, despite the ban, exchanges are thriving.
In many instances it is a double loss. If the monetary authorities were to regulate cryptocurrencies, they would benefit from taxation while also preventing fraud and scams. Institutional investors, corporate investment, and high volume traders would bring increased revenue streams to the jurisdiction.
Cryptocurrency Exchange Regulation
Cryptocurrency exchange regulation is a growing field. Japan is one of the most advanced jurisdictions in terms of exchange regulatory compliance, and other countries such as Malta are making significant progress. Cooperation between regulatory authorities and blockchain companies is yielding dividends as these countries progress at the expense of their larger counterparts, such as China, Russia, and the USA. But even in the larger countries, progress is being made.
In the USA, Coinbase gained approval for broker-dealer and RIA licenses from the SEC. In Europe, ETERBASE aims to become the first bank grade cryptocurrency exchange, built from the ground up for regulatory compliance. If it succeeds, it could be the gold standard for cryptocurrency exchange regulation. Transactions will be held to the same standards as banks and corporations, and the exchange will also offer debit cards and IBANs.
The case has been made for decentralized exchanges (DEXs). But current DEXs are nowhere near compliant, and are plagued with issues. The idea that cryptocurrency exchanges will be able to completely circumvent global regulatory policies is naïve yet still harbored by many die-hard cryptocurrency enthusiasts. Cooperation between exchanges and regulatory authorities in various regions is the best avenue to facilitate growth and success for all parties.
Exchanges that can achieve regulatory compliance will have more long-term success that those that take a more circuitous route.