There has been a maelstrom of conversation around the blockchain and cryptoasset landscape during the last several months, and that is with justifiable reason. Following a breath-taking runup that saw prices hit all-time highs for almost every cryptoasset in the marketplace a new crypto winter has set in. Bankruptcies and scandal are making headlines with soap-opera-like regularity, many investors have either lost massive amounts, or are hunkering down to wait this bear market out, and policymakers are under constant pressure to take action, and to do so promptly.
Spurred into action by investors, politicians, and the media frenzy around this crypto collapse there have been recurring calls for global standards around how cryptoassets are to be treated. Following the recent (although possibly temporary) failure of a bill that contained a similar global policy for corporate taxes, however, it seems worthwhile to take a second look at just what a global policy for cryptoassets might actually mean. On the surface of the idea, a globally consistent policy built on consensus and agreement by all nations involved sounds like an almost utopian solution to reign in a sector that has (so far) proven difficult to regulate at the nation-state level.
Taking a closer look at such an idea, however, reveals that there are several significant considerations that should be assessed prior to moving forward.
Vested interests will prevail. A paradox of regulation that can go overlooked in mass media conversation, but is obvious once it is recognized is the fact that the larger and more entrenched an organization is (the incumbents) the most positively they tend to view regulation. Larger and more established organizations – in any industry – tend to have the personnel, financial resources, and legal expertise to successfully navigate almost any regulatory changes or obligations that are levied upon them. Smaller firms, startups, and entrepreneurs thinking of entering an industry, however, are not nearly as well equipped to contend with such changes.
Any global regulatory framework to be developed would invariably involve large amounts of cooperation from the largest and most influential organizations in the financial services space. These very same firms are also the ones most likely to seek to dissuade startups and/or competition, and would – in all likelihood – lobby from regulations most favorable to them.
This is not evil, nor unethical, and is something any management team with a fiduciary duty would seek to do. That said, this also works against developing a global, top-down, incumbent influenced framework.
Inflexibility. Another negative implication a global regulatory framework is that such a framework, by its very nature, would be inflexible in nature, and this is due to two distinct, but related reasons. Firstly, any type of updates or modifications that would be necessary to accommodate new market changes would – almost assuredly – need to be approved by a majority or at least plurality of initial signers. Anyone with even a cursory of decision making, or even just an awareness of policymaking at large, should realize obtaining such a consensus would be a difficult, if not impossible task.
This brittleness would eventually, as it always does, lead to a series of workarounds, compromises, and half-baked solutions that do little to benefit the ecosystem, and are instead implemented on an ad hoc basis to placate calls to action. With such a regulatory framework, exemptions, inconsistent enforcement, and blatant disregarding of the rules would inevitably follow to varying degrees.
Top down solutions appear to be simpler initially, but over time create more problems due to the massive amount of buy-in necessary for any future changes.
Disempowering voters. Most disturbing around any global regulation or regulatory framework is the simple fact that this places the voters of different nations – who have elected officials to represent their interests – under the sway of individuals and committees over whom they have no influence. Disempowering entire nations in such a manner is a dangerous path to go down, and would (rightly so) lead to dissatisfaction with whatever was produced, attempts to undermine enforcement, and might even give power to specific politicians and political parties campaigning on an anti-global platform.
Additionally this would also lead to a disempowerment of the regulators of the nations that would fall under this regulatory construct. Under such as circumstance it would be reasonable to ask – what is the point of national crypto regulators in the face of such a global framework? These exact questions have been asked during the entirety of the existence of the European Central Bank (ECB), and the role left for the central banks of member nations – for example – and there is almost no reason to expect it to be different under a global crypto regulatory regime.
Global coordination and rule-making is a facet of any global industry or economic sector, and the cryptoasset industry is no exception to this rule. Amidst the volatility and dramatic changes in sentiment, the calls for globally consistent and comparable rules have only grown in volume. Rules, and more importantly consistent rules, are necessary for any sector to grow, mature, and become more widely adopted. Crypto rules should be the result of nation-state collaboration bringing together regulators, investors, and policymakers, and not a top-down framework mandated without accountability or transparency. Anything else is a recipe for inflexible and ineffective rules that will be a disservice to all market participants.