Cryptocurrency

Cryptocurrencies - “Friend or Foe” to the financial industry?

Cryptocurrencies are all the buzz, but what are regulators saying?

Esteban Santana

Cryptocurrencies have potential opportunities for banks and consumers. With great opportunities, comes potential risks. The FRS (Federal Reserve System), FDIC, and the OCC recognized the risks and acted accordingly to rapidly address crypto-assets. Crypto-assets was defined by the regulators as any digital asset implemented using cryptographic techniques. The regulators focused on identifying risks related to safety and soundness, consumer protection, and compliance, among other items. These risks should sound familiar because they are already implemented in regulated banks to promote safety and soundness in the banking system. My thought is that the main objective of future regulations of crypto-assets in banks would be to maintain market stability. A few years ago, the market was mainly dominated by Bitcoin and now numerous players of digital assets are gaining dominance.    

As an industry at approximately $3 trillion, some argue that cryptocurrencies could be used for illicit purposes, or used to take advantage of consumers who are not aware of the risks. You have all probably read in various channels that cryptocurrencies are being used for illicit financing. Although this may be true to some extent, others argue that criminal activity represents approximately 2% in 2019 and approximately 0.34% in 2020. You may know people on both sides of the investment spectrum; Some may have done very well…others not so well. Maybe the ones who have done well are more diversified and have an understanding of the risks.

With large banks already investing billions into cryptocurrency and blockchain companies, Miami (MiamiCoin) and New York (NYCCoin) racing to be the first centre for cryptocurrency, and companies accepting digital coins as payments, it may be a matter of time before Congress passes additional laws and the regulators issue rules and regulations affecting the cryptocurrencies markets. 2022 is on the horizon, we won’t have to wait long.            

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