Towards a balanced future: A middle ground approach to crypto regulation -TGN

As the cryptocurrency market continues to evolve, a middle-ground regulatory consensus is gaining momentum, aiming to strike a balance between skepticism and optimism around cryptocurrencies, Aaron Brown, a former general manager and head of financial market research at AQR Capital Management, said. meant in a recent piece for Bloomberg.

Four senior executives from the International Monetary Fund (IMF) recently set out their views on international crypto regulation in a IMF blog.

Previously, G20 members received support from the IMF and the United States to coordinate global crypto regulation.

The executive proposed four basic principles, while praising one principle, criticizing two and deeming another problematic.

Embrace competition and strengthen institutions

Aaron stressed that one of the proposals from IMF executives that garnered support was the idea of ​​defending against the substitution of sovereign currencies by strengthening domestic institutions.

Improving such institutions encourages traditional financial players to up their game and improve their offerings rather than seeking regulatory intervention to suppress crypto competitors.

This approach recognizes that the advent of cryptocurrencies was fueled by mistrust of the traditional financial system during the 2008 financial crisis.

By promoting confidence in government credit, central bank competence and compliance with the rule of law, the traditional financial sector can regain lost ground.

However, a controversial principle put forward by IMF executives is to refrain from granting legal tender status to cryptocurrencies, which a few countries have already done.

Critics argue that this move is not intended to protect national sovereignty, as claimed, but rather to secure the government revenue generated by seigniorage – the profits governments generate by spending money.

By denying cryptocurrencies official status, governments are trying to maintain their monopoly on money creation as the growing popularity of crypto threatens traditional revenue streams.

Another controversial proposal from IMF executives involves the integration of cryptocurrencies into existing regimes that manage capital flows.

However, critics equate such measures with financial repression, which restricts the free movement of capital across borders.

Capital flow management can be detrimental to crypto’s benefits of seamless cross-border transactions.

Rather than resorting to such financial constraints, crypto proponents argue that embracing the innovative potential of digital assets could lead to more favorable outcomes for both the economy and global trade.

Attempt to define and enforce tax policies

The latest proposal that has received criticism revolves around imposing strict tax policies on cryptocurrencies to ensure unambiguous treatment and compliance.

Critics point out that attempts to predefine the tax treatment for each crypto project can hinder innovation and the unique and intricate ways these projects operate.

Instead, a more constructive approach would be for regulators to jointly explore ways to harness the potential of the crypto ecosystem to generate government revenue without stifling growth.

Optimism around crypto regulation

Aaron further believed that despite the differing perspectives, there is growing optimism about the future of crypto regulation.

While the challenges are clear, the ongoing communication and dialogue between innovators and regulators contributes to a more cooperative atmosphere.

While a definitive regulatory model has not emerged yet, stakeholders seem more open to unconventional approaches to find common ground that will benefit both the crypto industry and traditional financial systems.

In the United States, a group of House Republicans introduced a long-awaited bill last week.

If adopted, the crypto oversight roles of the Commodity Futures Trading Commission and the Securities and Exchange Commission will become more apparent in the North American country.