Crypto market players must take lead

Around the world, the so-called regulators are undertaking studies or surveys to help further enlighten their knowledge about cryptos, before they adopt the right regulatory approach and tools. There is an apparent rush to establish bodies to oversee the crypto market even before sufficient numbers have adopted this innovation.

In fact, regulation might seem inevitable for some classes of cryptos, its simply a matter of time. For example, the Initial Coin Offerings (ICO), have attracted mixed reviews ever since start-ups began issuing these tokens. There is a high probability that ICOs process will fall under the purview of hostile regulatory institutions if current efforts anything to go by.

In an ICO, a start up creates a certain amount of a digital token and sells it to the public, usually in exchange for other crypto-currencies such as Bitcoin or ether. Interested members of the public might want to acquire such tokens because they may have an inherent benefit – it grants the holder access to a service, a say in an outcome or a share in the project’s earnings.

It is almost similar to an Initial Public Offering (IPO) by which a company lists on a stock exchange for the first time and offers its stock to the public.

ICOs mixed fortunes

ICOs have enabled a number of start-ups to successfully fund the launch of new and better solutions. However, other ICOs have not been so successful resulting in token holders losing value. This is has helped to feed a very negative narrative of not only ICOs, but cryptos in general. There is no doubt that such a narrative has given fodder to opponents cryptos.

It makes a lot of sense for those driving specific cryptos, which are the subject of proposed regulations, to take the leading role in the crafting of any such regulation. That way, the crypto stakeholders will have a greater input in the process than those less knowledgeable about cryptos. At the moment, it appears institutions that are ‘concerned’ about the negative potential of cryptos have seized the initiative and have even set deadlines by which process of crafting regulation must be completed.

For instance, FCA has already offered views it gathered on ICOs in a just released consultation paper. In it, the FCA says it observed that in 2018, there was a significant reduction in capital raised in ICOs compared to the 2017 amount and global ICO funding was $65m in November 2018, compared to over $823m in November 2017.

“There are a number of reasons for this fall, with commentators identifying investor caution as a response to the large amount of fraudulent ICOs as well as a high failure rate of new enterprises that use the ICO process. This can also lead to ICOs missing their target collections. The underlying volatility of cryptoassets used may also be an issue as they are used, in many cases, for payments in ICOs,” the FCA concluded.

Naturally such an observation, which ignores the fact that in February 2018 and May 2018 ICOs raised over $2.5 billion and $2 billion respectively, leads to an incorrect perception of ICOs. 

Bias?

In addition, it betrays the non-bias rhetoric that is often espoused by regulatory institutions when it comes to cryptos.

To illustrate, according to Coindesk, an authoritative source of information about the crypto market, the year 2018 saw a growth in ICOs market, both in value terms and in numbers when compared to 2017.

Coindesk’s data suggest the total of the global ICO size was just under $6 billion in 2017 and in 2018, the market had grown to over $16 billion. So unless if there is something wrong with Coindesk’s data, then it is hard to believe that FCA has the correct figures. FCA relied on Token Data for its figures.

Next the FCA wants to buttress its findings about all classes of cryptos by inviting stakeholders and players to give their thoughts. The initial phase has already been completed and several ‘harms’ were identified while a few advantages of cryptos were also observed.

It is very clear from the foregoing that the odds are tilted heavily against cryptos because the process to draw up laws and regulations was initiated and carried out by outsiders.

Crypto players should set standard

An ideal scenario would have been if players in the crypto market organized themselves, set industry standards and a penal system that promotes discipline and order without violating much of the core principles of decentralized systems.

The success of decentralized systems is underlined by the resilience and growth of the crypto market yet the threat posed by rival markets demands some form of a unified or ‘centralized’ response. At the moment and as one would expect from a fledgling innovation, there is limited coordination when it comes to responding to regulatory threats.

Individuals seem to be operating in silos while others are engaged in feuds that have nothing to do with advancing the cause of cryptos. The market needs to put out a constant reminders about why Blockchain technology was necessary in the first place and that no regulatory body ever sanctioned the design of the first crypto-currency. Similarly, crypto players should not wait for outsiders to prescribe regulation.

Perhaps this regulatory challenge underlines why more efforts should be put in educating and informing new audiences. This is because such efforts will potentially lead to an improvement in the pace of mass adoption.  When cryptos reach that critical mass, then the market will not be easily bullied by rivals as is the case now.