Institutional Investors’ Peace of Mind For Crypto Exchanges Requires More Than Self Regulation


Institutional Investors Require More Than Self Regulation On Crypto Exchanges

As there is barely any regulatory oversight on the cryptosphere, investors are looking for ways to self-regulate in attempts to make the industry more attractive to institutional investors, some of whom are cautious of entering the market due to the potential for hacks and fraud.

Although interest among the institutional investors is growing, the industry is plagued by fraud and regulatory uncertainty. As for numbers, in the second quarter of 2018 investors lost $670 million in cryptocurrencies due to hacks and scams.

To change this, two new groups have emerged. One is the Virtual Commodity Association (VCA), the industry’s first self-regulatory organization, which was launched by the Winklevoss brothers’ Gemini exchange, Bitstamp, bitFlyer USA, and Bittrex this past August. The second group, the Blockchain Association, is comprised of companies like Coinbase, Circle, Digital Currency Group, Polychain Capital, Protocol Labs, and Zcash, and concentrates on topics such as tax treatment of tokens and consumer protection.

However, not everyone thinks that these establishments are on the right path. Take Joseph Moreno for example, a partner in Cadwalader’s White Collar Defense and Investigations Group, say the idea of self-regulatory organizations may not be very effective. Moreno contrasted the self-regulating nature of the VCA with that of Financial Industry Regulatory Authority (FINRA), a self-governing body which is authorized by Congress and supervised by the Securities and Exchange Commission (SEC). He is of the opinion that self-regulatory groups will not have any governmental-like regulatory authority to bring enforcement actions.

Not everyone in the crypto world is open to self-regulatory organizations like the VCA and the Blockchain Association, which, to many, go against the concept of decentralization that is at the core of blockchain-based digital currencies.

Nonetheless, the reasons for these organizations coming up in 2018 are obvious. We have seen governments across the globe looking with increased scrutiny at the industry in attempts to regulate from the outside in. Notably, earlier this year we saw this in the form of cease-and-desist orders and even blanket bans against cryptocurrencies. In just the past few months, the SEC and FINRA have issued a string of disciplinary actions against companies involved with virtual currencies.

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