Former Crypto Exchange Gatecoin Shows Why Regulations Are Needed In The Crypto Market

Former Crypto Exchange Gatecoin Shows Why Regulations Are Needed In The Crypto Market

At the moment, it is not clear what is going to happen with the users of the defunct crypto exchange Gatecoin. The market lacks clear regulations that could help investors in difficult situations such as hacks to crypto exchanges. According to a report released by the South China Morning Post, it is necessary to have legal ownership of crypto assets.

Regulations Are Important For The Crypto Market

There have been many issues with virtual currency exchanges that lost their funds after attacks from hackers. The losses related to crypto exchanges being hacked has surpassed $1 billion in the last years. Indeed, just one exchange in 2018, Coincheck, lost over $500 million in NEM (XEM) coins after a hack.

There is a lack of regulations that would clearly define the legal ownership of cryptocurrency assets. It is necessary to establish a legal and ownership definition for digital assets. Gatecoin is one of the exchanges that has been affected by these issues is Gatecoin. Investors that held their funds in this platform are not expected to be getting their funds back in the near future at least.

The exchange lost $21.4 million worth of cryptocurrencies after a hack in May 2016. Gatecoin had also some issues with nine Hong Kong’s banks since they closed the bank accounts that the exchange had. Due to this reason, the exchange decided to enter liquidation after financial distress on March 15, 2019.

Due to the lack of proper regulations for virtual currencies and exchanges, and the current issue with the banks, the chances for affected users to receive their funds back are very slim. In general, most of the exchanges hold clients’ assets under their own private keys. Thus, exchanges holding users’ funds is a great concern, according to Peter Greaves, a partner at PwC’s China and Hong Kong restructuring and insolvency team.

On the mater, Greaves commented:

“Even if these assets are stored in a cold wallet, once it is registered on the blockchain under the exchange's name as it holds these tokens on behalf of its clients, in a liquidation scenario these assets still belong to the cryptocurrency exchange.”

One of the first things that can be implemented to improve the regulatory landscape of the industry is to create a regulatory sandbox where companies could operate. The financial watchdog of the city, the Securities and Futures Commission (SFC), unveiled a regulatory sandbox that aims at regulating the virtual currency market. Nonetheless, the sandbox couldn’t evolve into a legally binding regulation.

There are several countries that are starting to regulate the cryptocurrency market. Malta and Switzerland are just two of the countries that have implemented regulations that protect investors and facilitate blockchain and crypto investment in these jurisdictions. Meanwhile, the United States and the European Union (EU) are yet trying to create a regulatory framework for companies to operate.

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