US Securities and Exchange chair Gary Gensler recently cautioned that for cryptocurrencies to stay relevant, they would need to play ball and become regulated.
Relevancy is not predicated on some over-zealous desire for regulators to monitor and control the crypto supply. Rather, it has to do with the underpinning element of finance – trust.
For any financial mechanism to go mainstream it must be trusted. Money only works as a collective myth we all believe in today.
The Myth of Money and Cryptocurrencies
If the European Central Bank (ECB) stops recognizing the value of the Euro or merchants globally stop accepting it, the myth is busted and the Euro has just lost its worth.
Cryptocurrencies are not backed by the ECB or the Feds, but they live on because many people believe they have value and put that value in “real monetary terms”.
You can buy a Bitcoin for $40,000 today, but you would only have paid $340 for it in April 2014. What has changed is not so much that regulators and banks approve of crypto but rather the critical mass of people who believe in the token's value has increased.
Why then would Gensler argue that we need more regulation to make crypto relevant? If anything, Bitcoin is more relevant than it has ever been in its past. Elon Musk supports it and Tesla even briefly offered to exchange vehicles for it.
Well, in 2014, the Feds, SEC and the ECB had no interest in crypto. They were aware, they were tracking it, but they never really admitted that it could become a mainstream happening.
Crypto Is Mainstream, To Stay This Way It Needs to Be Regulated
Gensler though raises an important point. If crypto is to stay relevant, it needs to be finally regulated and put in a public framework of trust. The general public is still skeptical of crypto, even though many people acknowledge its potential.
However, without the backing of institutions, crypto remains an outlaw currency that while introduced to big investment banks and wealth clients, still raises many questions. Is it a medium of exchange, is it designed to store wealth? What defines it?
Ripple v SEC's latest lawsuit show how a lack of regulation can catch up with a currency years after and create room for debate that will ultimately hurt growth. Therefore, creating a framework that binds crypto to certain norms is not that much against the grain of the decentralized idea behind such currencies.
If anything it invites crypto to the mainstream financial world where it has always wanted to be. After all, Bitcoin and others are created with the idea of minimizing government interference in stakeholders' financial affairs.
However, a level of trust and protection is needed to ensure that Bitcoin and others don't mislead consumers. That will require clear-cut regulation. To stay relevant, crypto needs to accept that.