• The alleged Bitfinex-Tether scam dominated headliens recently, with pundits and investors asking whether the USDT stablecone really was one-to-one asset-backed as promised
  • In a the current regulatory vacuum, many people who run digital currency exchanges may find it difficult to form legitimate banking relationships and feel pressured to use shadow banks instead
  • As the digital currency market continues to mature, partnerships between FinTechs and the stablished financial ecosystm (including regulators and banks) will be crucial

By: Jai Waterman, Co-Founder and Chief Enterprise Architect

The alleged Bitfinex-Tether scam dominated headlines recently, with pundits and investors asking questions about if the Tether stablecoin really was one-to-one asset-backed, if Bitfinex had suffered one scandal too many, and if the crypto market is safe enough for investors.

These questions are important, but they miss the most important point.

When consumer demand meets a regulatory vacuum

Consumer demand for crypto is growing, particularly among identity-verified users - the number of user-verified accounts grew 400% in 2017 and doubled again in the first three quarters of 2018, for over 35 million in total. This speaks to the fact that what crypto enthusiasts want to see more than anything else is mainstream adoption of digital currencies.

One key ingredient to make this happen is the ability for exchanges like Bitfinex to find reliable banking partners. But at the same time, there’s a widely shared understanding in the crypto world that exchanges trying to run legitimate and transparent operations may have their bank accounts shut down by institutions that lack the regulatory guidance to navigate the crypto market, regardless of how quickly it’s maturing.

The result? The people who run exchanges like Bitfinex may feel forced to use shadow banks as they try to meet growing consumer demand. Which, as we know, is bad for business and the growth of the crypto community.

The need for comprehensive, thoughtful regulations

If banks had clear, comprehensive and thoughtful direction from regulators, things would be simpler for crypto exchanges and investors alike. The emphasis here is on “clear and thoughtful,” because it’s too easy for new regulations to miss the mark.

For an example of regulations failing to meet the needs of consumers, look no further than the Canadian approach to cannabis. The federal government legalized cannabis in 2018 but left regulations up to each province, and one man is suing Ontario for discrimination on the grounds that its rules make cannabis too difficult and expensive for those with disabilities and financial limitations to acquire.

With an estimated market cap of nearly $200 billion USD for cryptocurrencies, governments have a responsibility to get their regulations right so banks can move in and provide reliable service to the crypto industry.

The path towards banking for bitcoin

At Blockstation, we believe that the way forward is for tech firms like us to develop solutions designed to work with traditional institutions - banks, brokers, stock exchanges, depositories, and regulators - from the ground up. With our end-to-end solution for trading digital assets, stock exchanges can list cryptos like BTC and ETH and provide investors with:

  • A safe, regulated environment to buy and sell cryptos and avoid bitcoin scams

  • 100% insurance on all assets in a multi-sig cold storage vault

  • Unlimited cash-out and withdrawal of crypto assets to everyday bank accounts

By working with regulators and baking compliance into trading solutions, FinTechs like Blockstation provide market security and transparency to all participants in the ecosystem.

The world is changing; are your regulations keeping up?

Digital currencies aren’t going away, and for governments, that leaves two options: ban them and create a black market), or regulate them and reap the benefits.

Regulators: Do you want your Risk, Legal and Compliance teams to be well-equipped for the digital future?

Join a Blockstation Digital Asset Regulation workshop! Complete and submit the form below and we will demonstrate the processes, procedures and real-life tools that will enable your organization to:

  • better protect investors

  • maintain a fair marketplace

  • ensure transparency, and

  • mitigate systemic risk for you organization and industry partners

Sign up for a Blockstation Digital Asset Regulation workshop!