The collapse of the crypto exchange FTX dealt another blow to the market for Bitcoin and Co. There is talk of the crypto winter in the industry. Bafin boss Branson would like to “extend regulation to all areas”. But he doesn't want to "kill" the business.
Bafin President Mark Branson wants to use the crypto winter for stricter regulation of the market. "It's time to tackle serious regulation," the head of Germany's financial regulator told journalists this week. This includes extending regulation “to all areas”, including the deposit and lending business of crypto platforms. On the crypto business, he said, "I don't want to kill it, but I don't like the risks."
The crypto asset market has plummeted over the past few months amid rising interest rates and multiple scams. Rising interest rates have made crypto assets less attractive, usually yielding no returns, and made leveraged investments more difficult. The best-known crypto asset, Bitcoin, has lost around 60 percent of its value in euros this year.
The collapse of crypto exchange FTX has dealt another blow to the market. FTX founder Sam Bankman-Fried is being charged by US authorities with "one of the largest financial fraud cases in American history". There is talk of the crypto winter in the industry.
"After the crypto winter, spring can come again," Branson said. But it's not that far yet. "We're not through yet. Some have collapsed, others will." It is still true that investments in crypto assets can lead to total loss. "I always said that, unfortunately it has become reality."
Should the crypto market grow again, the Bafin President expects "very likely much more integration with the traditional financial system". Regulation must adapt to this, and the crypto market should be treated in the same way as the traditional financial system according to the principle of "same risk, same rules". Specifically, it is about the three areas of financial stability, consumer protection and money laundering. Especially when it comes to money laundering, there is a lot going on in the crypto sector. "Bitcoin is organized crime's most popular form of payment," Branson said.
The Bafin President is particularly interested in crypto exchanges such as FTX. "Crypto exchanges are more than exchanges," he said. They offer not only the platform for trading, but also deposit and lending services as well as custody. This must be taken into account and, as with banks, "liquidity-oriented liquidity regulations" must be introduced. In addition, the national legislature in Germany must clarify the status of tokens in the event of insolvency. So far, this has not been "regulated".
According to Branson, "now is the right time" to clarify the future handling of the crypto world. You have to decide whether it should be tightly regulated or completely unregulated and sealed off from the rest of the financial system and, if in doubt, let it burn down completely. The two academics Stephen Cecchetti from the Brandeis International Business School and Kim Schoenholtz from the NYU Stern School of Business recently started this discussion with a guest article in the "Financial Times". Their key message is: "Instead of creating a new legal and regulatory framework that legitimizes cryptocurrencies, we should just let them burn."
Branson rejected the approach of a completely unregulated crypto world. "It's tempting, but implausible," he said. Instead, he advocated “healthy competition between the fiat money and crypto worlds”. Then it will be shown which system is superior.
In his own words, Branson finds the blockchain technology on which many crypto assets are based exciting. "I'm very neutral on that," he said. However, he has now had doubts as to whether the blockchain is really suitable for processing payment transactions. "The blockchain is difficult to scale and therefore has disadvantages compared to traditional databases."
The article first appeared on Capital.de.
