On Thursday, the chair of an international financial watchdog said that he expects there will be a global cryptocurrency regulatory body within the next year. In light of recent panicked freefall of multiple “stable” coins, we probably need one.
“I would not expect that to be the case same time next year. I think that [lack of regulation] is bound to change,” said the International Organisation of Securities Commissions (IOSCO), Ashley Alder. Alder further explained that another international watchdog group, the Financial Stability Board, is already working on policies surrounding un-backed crypto and that the Bank of England is considering stablecoin regulation.
The stablecoin TerraUSD became depegged from the value of the U.S. dollar over the weekend and hasn’t recovered, sending its sister coin Luna into a death spiral. TerraUSD maintains its price algorithmically rather than via backing by assets, which is what allowed for the dissociation from the $US1 ($1.46) pricetag. A single Luna, recently the fourth most popular digital currency, worth more than $US87 ($127) a week ago, and is now trading for less than $US0.01 ($0). Binance, the cryptocurrency exchange, de-listed the coin in response. Tether, the most popular stablecoin, also came depegged on Thursday.
And that’s just two examples from today. Cryptocurrency values are plummeting across the board. The one and only, original — bitcoin — has lost more than half its value over the past six months, dropping by almost 40% alone between May 4 and May 12.
Why? In large part because the value of crypto is entirely confidence-based, and the system incentivizes cashing out. Although stablecoins purport to be linked to something with measurable, accepted value like the dollar, that link is tenuous and easily disrupted, only as strong as the belief that keeps the majority of its holders from making a run on the bank.
Plus, there’s the continual issue of blockchain theft.
The speculative announcement of future regulation came during an online conference, organised by OMFIF, a financial thinktank. Alder, who also heads Hong Kong’s Security and Futures Commission, compared the state of cryptocurrency regulation and global cooperation with that of climate finance. “Climate finance is way ahead [of crypto]. There are so many international efforts… the international sustainability standards board, the international platform, the G20 group,” he said. Then, added “there isn’t anything like that for crypto at the moment.”
And notably, climate finance isn’t a series of pyramid schemes duping regular people into potentially losing their life savings. He went on to say that crypto regulation is “very, very important,” and has “gone up the agenda.”
Earlier this week U.S. Treasury Secretary Janet Yellen also, independently called for an urgent regulatory “framework” to manage stablecoins — highlighting the plight of Terra/Luna. In the testimony before the Senate Banking Committee, Yellen and Republican Sen. Pat Toomey further talked about getting regulations passed before the end of 2022.
For now, it’s unclear what exactly regulations on stablecoin or other crypto would look like (or if the stablecoin system could even survive it). In March, the Biden Administration issued an executive order outlining a path to federal cryptocurrency regulation, but the document fell short of offering specific recommendations.
Here’s hoping something changes soon though, because the current system is wildly volatile: sewing chaos across the internet as well as real people’s bank accounts.