While supply-chain woes are continuing and the U.S. dollar struggles to fight inflation concerns, crypto continues to be a tempting port in this financial storm. New financial instruments have been created by the recent approval of the first Bitcoin futures-linked exchange traded fund (ETF), which can trade on the NYSE and Nasdaq. It was managed by asset managers ProShares Funds and Valkyrie Funds. The United States Securities and Exchange Commission (SEC) approved Valkyrie, while ProShares ETF was not opposed.
This marks the end of a huge year for institutional finance in crypto. Coinbase’s massive $64 billion NASDAQ listing was the highlight of 2018. Large pre-IPO venture capitalists (VCs), such as Andreessen Horowitz, have also launched billion-dollar funds exclusively focused on crypto.
Financial excitement isn’t just for the industry’s most prominent names. According to reports, crypto-related startups raised over $2.6 billion in their first quarter 2021. This is more than any other quarter in 2020.
Crypto must be an investment vehicle that can withstand competition and be considered a serious alternative to gold or tulipmania. It needs to be supported by institutional finance for long-term stability.
It’s easier said than done. So, how does crypto do it?
Related: Why now? It took the SEC eight years to approve a Bitcoin ETF in America
Open the gate by lowering your fences
Although Crypto has shown that it can deliver eye-popping yields of triple-digit percentages, these large swings only strengthen its reputation as the “Wild West”, in finance. Crypto will not be a mature investment option until it is able to demonstrate its stability and transparency.
Many of the stakeholders and watchdogs in the new crypto economy expressed some doubt. Gary Gensler, the Chair of the SEC, stated that he is still concerned about investor protection in the crypto asset market worth $2.5 trillion. Gensler said it at the Yahoo Finance All Markets Summit last month.
“Investors don’t have the same protection they do, regardless of whether they invest in the stock or bond markets we have been monitoring for so many years. It is, as I have said, a little bit of the Wild West without that.
This perception of a dangerous market is due to the market’s speculative nature and insufficient supervision. This combination of excitement and danger can be a welcome feeling for some investors — they may “moon” one day, then buy the dip the next. However, it is not the best way to attract major institutional finance.
Major crypto companies know this and have been working to establish standards to make crypto an attractive investment option for everyone, from small retail investors to large financial institutions. The a16z mentioned principles for industry regulation in a report to U.S. Senate Banking Committee.
Anyone who looked at the a16z report should not forget that it was not only presented to a government agency but also included solutions that would have been impossible without government cooperation. While crypto-anarchists and libertarians may laugh, it is crucial for crypto to realize its full potential investment potential that there is cooperation between major financial institutions, governments, and retail crypto investors.
Similar: What you need to know and fear about the new IRS crypto tax reporting
Sir, I am sorry but we need some law
Although Bitcoin was originally designed to bypass central banks and currency manipulation, the government must still sign off on and buy-in cryptocurrency to create global legitimacy and investment.
It is better for the crypto industry to be proactive, not only in policing but also in determining how federal legislators will regulate crypto. They may not be as crypto-savvy or knowledgeable as the industry. The United States is currently working on an infrastructure bill, which threatens crypto with unclear language and misplaced priorities. Coinbase and A16z have tirelessly worked to ensure that crypto interests (and their own) are protected in the bill. However, only a few large companies can do more. To make this regulation acceptable, it will require the support of the entire industry.
Related: US infrastructure law could brace digital assets — but first, some fixes
Even though some of the crypto provisions in the infrastructure bill are terrible, they can also be a source of good if they become law. Many crypto companies will be able to deal with banks in a more streamlined manner thanks to these new crypto provisions. They won’t have to worry about being banned or unable to open accounts. The unique language allows for the integration of crypto with the country’s largest banks, opening up new markets and unlocking new investors.
Similar to the U.S., foreign governments may be able to provide an example of how sane procrypto regulation should look like. Canada’s clear and encouraging regulations have enabled crypto ETFs almost to dominate Canada’s fledgling ETF market.
The first step to solving a problem is acknowledging it exists, as the old saying goes. The entire crypto industry must recognize the long-term issues posed by the lack of regulation. It should also find ways to collaborate with regulators and legislators to ensure consumers are not diluted by the strong value propositions that attracted crypto investors in the first place.
These views, thoughts, and opinions are solely the author’s and do not necessarily reflect the views or opinions of Cointelegraph.
James Giancotti, the co-founder of Oddup and its CEO, is a global startup rating site. After starting his career as a consultant at Deloitte, he moved into investment banking and research positions at J.P Morgan and Goldman Sachs. After 10 years of advising high-growth businesses, he decided to become an investor and entrepreneur. He is currently the CEO of Oddup and Alluva which are the largest global crypto asset marketplaces.