Amid crypto crash, some market players argue for less regulation but more clarity

RECENT troubles in the cryptocurrencies space might cause authorities to tighten laws, but some market players believe governments that over-regulate might be doing so at their own peril.

Speaking at a panel at the 4th Annual Security Token Summit in New York City on Monday (May 16), US Congressman Tom Emmer warned that legislators could potentially “come rushing in to try and protect people from their ability to take their own risk” after the recent meltdown involving stablecoin TerraUSD and its sister token Luna. 

“That never ends well,” said Emmer. Instead of more regulation, Emmer suggested markets need “more clarity and certainty” in order to allow financial innovations to “grow and prosper”.

For instance, he noted how he had started out asking for more definitions on what exactly a currency, commodity and security were.

“We want people who are out here innovating to understand what the rules are that they have to comply with,” he said. 

Emmer stressed that innovation should continue in spite of the recent crash, especially since financial technology is readily available in markets today. 

“I want to see people actually innovate and create and not be punished for it. If we learn something through the innovation (or) that creation, we can come back after that and figure out how you put rails on it and how you deal with it; but people should not be punished for innovating,” he said.

Governments around the world are grappling with how to protect the public as well as the financial system from risks posed by the proliferation of cryptocurrencies.

Last week, US Treasury secretary Janet Yellen had called for stablecoin rules, citing the “same kind of risks that we have known for centuries in connection with bank runs”.

But market players see regulation as a potential hindrance to industry development. Tim Draper of blockchain venture studio and fund Draper Goren Holm said regulators do not have to protect people from themselves, but should instead “let them take a chance”. 

Some speculation on the likes of new currencies, entrepreneurs and innovation could help the economy grow and become “dynamic and exciting”, said Draper. 

Markets need to be aware that there will always be “bugs in the system” during the innovation process. “But over time those mistakes get filled… (and) you get to a place where you have a product that everybody can use,” he said. 

Draper is optimistic about currencies like Bitcoin that are “innovative and doing interesting things”. He is not as upbeat on stablecoins that are tied to a fiat currency.

Cryptocurrency, he said, is set to change many of the biggest industries in the world. Some examples include the banking, insurance, commerce and finance sectors. This would make it hard for investors or regulators to ignore alternative currencies.

That said, regulation is still important in the industry – provided it is done in such a way as not to deter entrants. 

Alon Goren, another founding partner at Draper Goren Holm, said he is a fan of technology that makes people feel like they don’t have to deal with the restrictions. He also favours restrictions that are “simplified” and make it easy for people to participate in market activities.