Ever since crypto catapulted into the limelight, it has garnered its fair share of critics. Many view crypto coins as volatile assets with no inherent value outside of the manufactured hype generated by its legions of devotees.
Crypto companies, in turn, defended themselves from these criticisms. They argued that they were bringing an alternative way of trading currency which relied less on centralised control (ie, banks) and instead gave power back to traders with a decentralised model that was powered by blockchain technology.
Belief in crypto crumbles
And for a while, crypto firms enjoyed unprecedented growth. Keen traders bought into its potential, snapping up cryptocurrencies such as ethereum or investing in NFTs. But unfortunately, the goodwill crypto companies initially enjoyed soon began to crumble. Last year proved to be one of the most divisive in crypto history, with a major hack into one of the blockchain networks, Ronin network, costing £625 million. This was further compounded by a series of blockchain network collapses, culminating in the bankruptcy of FTX, the third largest cryptocurrency exchange at the time.
Following the disintegration of FTX, calls to regulate digital assets intensified. The UK and US governments, already opposed to and distrustful of digital assets, distanced their mainstream financial sectors from crypto while pointing a damning finger at the recklessness and excess of the crypto space. Even the advertising industry weighed into the storm, warning crypto firms that they would need authorisation if they were to continue advertising their crypto offerings.
Despite its fierce opposition to any form of regulation and its steadfast commitment to remain as decentralised as possible, after such a dismal year of hacks and scandals, the crypto sector had to concede ground. Regulation, in whatever forms that takes, was coming.
But could regulation be a golden opportunity for the crypto sector to redeem itself?
Regulation could bring more maturity to the crypto sector
One of the main criticisms about crypto and the wider DeFi space is that it is immature. Michael Hsu, a top Wall Street Bank Watchdog, called the crypto sector exactly that, stressing the ‘unabating volume of scams, hacks, and fraud.”
The fact that crypto is often associated with terms like scam, fraud and pyramid schemes is an obvious sign of just how immature it is seen in the eyes of serious financial experts. With all the hacks and network collapses that has affected the crypto space in the last year or so, the crypto sector can no longer simply defend its model.
Instead of crypto companies viewing regulation as an affront to what it stands for, instead they should reframe their thinking, and see regulation as a chance for crypto to become more mature. If crypto companies can acknowledge that there are still flaws in its model but are open to some regulation, it will go a long way in demonstrating to people and regulators that it wants to clean up its act and make crypto trading, whether that be trading stablecoins or NFTs, a viable and serious form of investment.
Restoring public trust
The collapse of FTX and the very high profile arrest of its CEO, Sam Bankman-Fried has severely damaged public confidence in crypto assets. All the initial goodwill and excitement around the potential of trading crypto, which caused a fervour among consumers, has since dissipated, replaced by public weariness and distrust.
Regulatory reforms present an opportunity for crypto companies to begin building back that initial trust with the public. Many people have lost large sums of money investing in crypto due to hacks and the mismanagement of crypto exchanges which lead to their total implosion. To restore public faith in crypto, it makes sense for crypto brands to show that they are learning from past missteps. And what better way to demonstrate that than by being open to regulation in some form, even if it means working with government officials to ensure any regulation does not encroach too much into the essence of crypto trading. If the crypto industry wants to salvage its reputation, it can no longer be against regulation but must rather embrace it.
Written by Leke Apena, account manager at agency PHA PR
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