Why Do Financial Experts Refer to Crypto Space as the Wild West?

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Blockchain
Why Do Financial Experts Refer to Crypto Space as the Wild West?

The crypto market has been dubbed the “Wild West” of the financial world. Hordes of computer programmers have attempted to bring traditional financial products such as loans to the blockchain. Moreover, without the involvement of brokers, anyone can lend and borrow crypto at competitive interest rates.

The Rowdy Wild West

Investors have been enticed by the promise of earning double-digit percentage yields on savings in certain digital tokens. However, this year, major hacks and scams have plagued the industry. As a result, regulators have become concerned about crime and consumer harm risks.

The crypto market is not in good shape at the moment. Not for investors, regulators, or project developers. This has analysts believing that financial authorities will pay closer attention to the crypto industry. Such views are reinforced by Sid Powell, a Maple Finance co-founder.

According to market experts, there will be no meaningful DeFi expansion without proper legislation. Regulators have already begun tightening their grip on the crypto sector. Now that regulations are accelerating, they will undoubtedly result in more controls in the future.

Why Is Crypto Seen as the Wild West of Finance? 

Crypto has long been associated with money laundering and tax evasion. While crypto regulations directives are expected to curb this, it will take a while. This is due to the decentralized nature of the crypto ecosystem. Most centralized AML measures have not worked in crypto finance.

Regardless of regulation sentiments, crypto is here to stay. The majority of these crypto coins and projects are still in their infancy. Nonetheless, the societal benefits are non-existent. They have cost investors more loss than benefits hence a need for regulations.

The Role of Cryptocurrencies

BTC and Altcoins are decentralized, largely unregulated, and self-sufficient. As a result, they are extremely difficult to control. They are not controlled by central banks or governments, as fiat currencies are. And their worth is determined by the simple laws of supply and demand.

Transactions and accounts are currently not linked to real-world identities. This provided a safe and anonymous haven. Furthermore, the transactions are directly between a willing buyer and seller. This means they cannot be stopped, restricted, frozen, confiscated, or reversed. 

By downloading the necessary free software, anyone can invest in crypto. Countries like Russia, North Korea, China, and Iran have even considered creating state-owned crypto. This is in an attempt to bypass tough economic sanctions. El Salvador has led in that front and made BTC a legal tender in the Central American nation.

Crypto Regulation

Regulating crypto is much easier said than done. BTC and Ether make up about half of the $1.2 trillion crypto market. Both crypto coins are open source. A company neither operates them, and both can operate on a peer-to-peer basis. For investors, it means they don’t require an intermediary exchange. 

The whole point of these technologies is that they’re decentralized. So how do you regulate them when there’s no central entity to regulate them?

“While it’s possible to read the tea leaves on the potential for regulatory action, what that response may entail in detail remains to be seen. But some enforcement actions are already being taken.”

This is the closest regulatory explanation offered by McDonell. He is the executive director of the Association of Certified AML and a regulation Specialist. 

Regulatory officials have made two things clear. One, they support the benefits that blockchain technology can confer on end-users. However, they are not ready to trust the sector’s ability to manage its financial-crime risks. 

Instead of taking on the technology, regulators have until now sought to confront particular companies that have sprung up around it. This is a relief to crypto investors because they will have the crypto industry at the end of the day. Further, all the bad actors will be cut from the innovative financial sector.

Yet just because consensus exists over the need to regulate, this doesn’t mean there’s consensus over the details. At the moment, there are primarily two camps tackling crypto. One believes crypto should be treated as securities. While another thinks they should be classified as commodities. 

CFTC and SEC

It sounds dry, but categorizing these crypto tokens will determine who regulates them. Commodities come under the Commodity Futures Trading Commission. Many argue that CFTC will give the industry far more leeway and far less scrutiny than the Security Exchange Commission.

When it comes to the goal of both investor protection and financial stability, CFTC gives a deregulatory departure from the status quo. One of the CFTC bills presented to the US congress gives most jurisdiction over crypto assets to the CFTC. The entity has no investor protection mandate and far fewer resources than the SEC.

Others argue that the SEC would stifle innovation. Patrick Daugherty and Louis Lehot, crypto experts at the Foley and Lardner law firm, support the notion of classifying crypto as commodities. 

Crypto’s explosive Wild West days may be coming to an end. But the spat over who governs the territory may bring some tense moments. The confusion is seen in so many parts of the world. The EU has the crypto regulation battle going on, as does Britain. However, China has that front settled. The PROC banned crypto and shut down crypto exchanges.

Conclusion

For various reasons, crypto has operated outside the authority of the most stringent watchdogs in its brief existence. This is due to its fragmented and decentralized nature. Its uncertain status as a legitimate currency has added fuel to regulation fires.

Additionally, regulations have been met with resistance from the relatively rebellious and tech-savvy crypto community. The spotlight is now shining brighter as crypto has infiltrated the zeitgeist.

This has made it impossible for those invested in a traditional economic system (i.e., governments) to ignore it without sacrificing some control. While crypto has many tables. Detractor is a polarizing market with a growing number of supporters.

The crash of Terra Luna once again demonstrated its unpredictability. Other catastrophes have destroyed the crypto market in 2022. These events appear to have escalated to the point of the regulatory overhaul. Only time can tell how regulators will fix the crypto “Wild west.”

Julius Mutunkei

Julius is a blockchain reporter skilled at synthesizing all crypto-related information to make articulate texts easy for anyone to grasp. With a beginner's level certificate in Financial Analysis, Julius can read, interpret and report crypto findings to help investors exercise the best judgment in their decision-making process. When he is not caught up in the crypto frenzy, Julius likes playing a game of FIFA with his online buddies.