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G20 Agrees to Regulate Crypto, But is This Good or Bad for the Market?

Last Updated March 4, 2021 3:13 PM
Joseph Young
Last Updated March 4, 2021 3:13 PM

The G20, an international forum for the governments and central bank governors from the world’s 20 largest economies, has decided to regulate the crypto sector.

A declaration released by the forum read:

“We will regulate crypto-assets for anti-money laundering and countering the financing of terrorism in line with FATF standards and we will consider other responses as needed.”

What Impact Could it Have?

Over-regulation restricts the growth of emerging asset classes and technologies by limiting the way companies can grow over the long-run.

For many years, the G20 has maintained an open-minded stance towards cryptocurrency regulation, possibly due to the encouragement of Japan, the second largest cryptocurrency market behind the U.S., to regulate the space and provide a healthy ecosystem for both startups and established companies.

Regulators can facilitate the growth of cryptocurrency companies, especially exchanges that require fiat on-ramps, by providing seamless access to legacy systems and banking services.

The government of South Korea, for example, recently permitted banks to work with cryptocurrency exchanges and provided a green light for financial institutions to offer virtual bank accounts to digital asset trading platforms.

Most countries within the G20 have already regulated their respective cryptocurrency sectors. An effort to regulate the international cryptocurrency market could encourage countries like Russia, Argentina, and India that are still yet to establish clear regulatory frameworks around the asset class.

The G20 said that it intends to help crypto create an open and resilient financial system and emphasized that it is “crucial to support sustainable growth.”

While over-regulation can hurt businesses in an early phase of growth, if countries within the G20 ensure that the policies they implement will not negatively affect the growth of cryptocurrency-related businesses to a significant extent, then the G20’s decision to regulate the global market could help eliminate the barrier between crypto and the traditional finance sector.

“We will continue to monitor and, if necessary, tackle emerging risks and vulnerabilities in the financial system; and, through continued regulatory and supervisory cooperation, address fragmentation. We look forward to continued progress on achieving resilient non-bank financial intermediation.”

More regulatory clarity could also speed up the process of major financial institutions like Morgan Stanley, Goldman Sachs, and State Street in establishing cryptocurrency ventures, which are currently waiting for regulators to operate as trusted custodians.

Public Investment Vehicles

Last week, the U.S. Securities and Exchange Commission (SEC) chairman Jay Clayton stated that Bitcoin markets are generally unregulated and vulnerable to manipulation.

Chairman Jay Clayton said:

“What investors expect is that trading in the commodity that underlies that ETF makes sense and is free from the risk of manipulation. It’s an issue that needs to be addressed before I would be comfortable.”

A gradual process of regulating the global cryptocurrency market may lead exchanges to become increasingly compliant with regional regulations, opening up the possibility of public investment vehicles like an exchange-traded fund (ETF) to be launched on top of the public cryptocurrency exchange market.

Read the full G20 declaration below:

Buenos Aires Leaders Declaration  by CCN.com  on Scribd

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