News that crypto exchange Binance was hacked, with 7000 Bitcoin – currently worth almost $41 million – stolen in a single transaction, highlights the need for tighter regulation of crypto exchanges.
Regulation was also the subject of an interview with the President of the Bitcoin Association, Jimmy Nguyen last week, in the light of recent decisions by a few exchanges to delist Bitcoin SV (BSV).
“The big lesson we’ve learnt [from the delisting episode] is how the cryptocurrency world as a whole needs to grow up and professionalise,” said Jimmy.
The delisting decisions of Binance and Kraken “had nothing to do with technical issues with BSV or its network” Jimmy said. “It all had to do with dislike of Craig Wright, a key backer of BSV, and his choice to invoke legal remedies to pursue libel claims against certain people who he believes have been defaming him online.”
The delistings raise wider, long-term issues, Jimmy believes: we don’t want a world in which “the CEOs of a couple of powerful exchanges …could negatively impact the worldwide market for an asset on their exchange and others just because they don’t like one person.”
It’s a “perfect example of why we need more regulatory oversight”. Jimmy acknowledges that the exchanges are private businesses and so, in some sense, can do as they choose. But he says their freedom is limited by the fact that “they create and influence the public markets for investment …The cryptocurrency world wants these assets to be treated seriously, as alternatives to money for example, and if that’s what we want, then exchanges …need to be held to reasonable standards.”
Jimmy criticised as “absolutely ridiculous” the use of Twitter polls as a factor in delisting decisions. He called for “objective criteria” in making such decisions, and on regulators to “be looking at exercising more regulatory oversight to make sure crypto exchanges can never do this again”.
He said that while some jurisdictions, such as the EU or the USA might take the lead, there would be no need for all territories to agree on exactly the same standards – just as there is variation in other kinds of financial regulation. It’s not the blockchains, but the companies that use them that should be the focus of regulation. In making decisions about which currencies to list, exchanges could use criteria such as trading volume, hash rate and the level of application development for example.
As President of the Bitcoin Association, Jimmy said he has already been in touch with regulators. He’s been asked to review a number of proposals from different countries in recent months for digital asset business regulation.
“Let’s be honest, we need to create more confidence for financial institutions as well as the ordinary consumer, to invest in and use cryptocurrency. Everyone in the crypto world should want that.”
Jimmy highlights the recent story about the New York Attorney General’s Office bringing a case against Bitfinex and Tether as also showing the need for regulation. Depending on the outcome of that case, it may be found that “a lot of our current cryptocurrency market is inflated with purchases that aren’t really backed by funds.”
Jimmy said it’s “ironic” that no exchanges have suggested delisting Tether over what is potentially – and he acknowledged that this has yet to be decided in court – “massive fraud in the Tether/Bitfinex ecosystem”. And yet the exchanges that delisted BSV were doing so on the basis of Craig Wright simply using due legal process to defend his own rights. “That hypocrisy is staggering,” Jimmy says, “and it’s exactly the kind of exchange environment we should not have”.
To achieve mass adoption, the ordinary consumer needs to feel safe. “BSV may have triggered the controversy …but what we’re urging in terms of more regulatory oversight and a compliance regime is going to be good for all participants in the cryptocurrency world.”
New exchanges that are specially designed for BSV will be one of the subjects under discussion at the CoinGeek conference in Toronto at the end of May. Please join us there to continue this debate.
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