Financial stability concerns
Bafin boss wants to regulate the crypto world harshly
By Stefan Schaaf
18/12/2022 14:54
The collapse of the FTX crypto exchange has dealt another blow to the Bitcoin and Co market. There is talk of crypto winter in the industry. The boss of Bafin, Branson, would like to “extend the regulations to all areas”. But he doesn’t want to “kill” the company.
Bafin chairman Mark Branson wants to use the crypto winter for tighter market regulation. “It’s time to tackle serious regulation,” the head of Germany’s financial regulator told reporters this week. This includes extending the regulations “to all areas” including the deposit and lending activities of crypto platforms. On the crypto sector, he said, “I don’t want to kill it, but I don’t like risk.”
The crypto asset market has fallen over the past few months amid rising interest rates and multiple scams. Rising interest rates have made crypto assets less attractive, typically yielding no returns, and made leveraged investing more difficult. The most well-known crypto asset, Bitcoin, has lost around 60% of its euro value this year.
The collapse of crypto exchange FTX has dealt another blow to the market. FTX founder Sam Bankman-Fried is accused by US authorities of “one of the biggest cases of financial fraud in American history”. There is talk of the crypto winter in the industry.
“More integration with the traditional financial system”
“After crypto winter, spring can come again,” Branson said. But it’s not that far yet. “We’re not done yet. Some have collapsed, some will.” It is always true that investments in crypto assets can lead to total loss. “I always said that, unfortunately it came true.”
Should the crypto market grow again, the Bafin chairman expects “most likely a lot more integration with the traditional financial system.” Regulation needs to adapt to this, and the crypto market needs to be treated the same as the traditional financial system under the “same risk, same rules” principle. More specifically, these are 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 industry. “Bitcoin is organized crime’s most popular form of payment,” Branson said.
The Bafin chairman is particularly interested in crypto exchanges such as FTX. “Crypto exchanges are more than exchanges,” he said. They not only offer the trading platform but also deposit and lending as well as custody services. This must be taken into account and, as with banks, “liquidity-oriented liquidity regulations” must be introduced. In addition, the national legislator in Germany must clarify the status of tokens in the event of insolvency. So far this has not been “regulated”.
Branson dismisses the completely unregulated crypto world
According to Branson, “it’s a good time” to clarify the future management of the crypto world. You have to decide whether it should be tightly regulated or completely unregulated and isolated from the rest of the financial system and, if in doubt, let it burn completely. The two academics Stephen Cecchetti of the Brandeis International Business School and Kim Schoenholtz of 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 totally unregulated crypto world. “It’s tempting, but implausible,” he said. Instead, he advocated “healthy competition between the worlds of fiat money and crypto.” 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 now has doubts whether blockchain is really suitable for processing payment transactions. “Blockchain is difficult to scale and therefore has disadvantages compared to traditional databases.”
The article first appeared on Capital.de.