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The ‘Crypto Winter’ and the downturn in valuations have been in many pieces, but two recent developments indicate that the asset class is here to stay. First, in August 2022, a bipartisan group of US senators proposed federal legislation to regulate digital goods. And, Coinbase, a US crypto exchange, partnered with BlackRock to give the asset manager direct access to crypto for institutional clients.
In the US, digital assets are currently governed by state-level safeguards, which can create loopholes when it comes to protecting consumers from fraud. The Digital Products Consumer Protection Act of 2022 gives the Commodity Futures Trading Commission special jurisdiction over the digital products space market, which senators say will bring more protections for consumers, market integrity and innovation.
Crypto market participants welcomed the legislation to provide clear federal oversight of digital asset markets. Sam Bankman-Fried, CEO of FTX, said that the crypto space will get a regime – it will bring total customer protection and control to distinguish the crypto product markets in the US – constructive and prosperous. Similarly, Coinbase Chief Policy Officer Faryar Shirzad emphasized that federal regulation is a big deal for crypto. It confirms that the US will continue its crypto policy in other regions.
According to a recent webinar on Regulation Asia co-hosted by Nasdaq, Hong Kong and Singapore have taken the lead in building the regulatory frameworks needed to ensure recovery and confidence in crypto markets. The Hong Kong government has introduced amendments to the Anti-Money Laundering and Anti-Terrorism Financing Act, which includes a new licensing system for virtual asset service providers (VASPs). In Hong Kong, “virtual assets” are implemented in Bitcoin and other altcoins, as well as stable coins and certain administrative tokens.
Angelina Kwan, chief executive of Stratford Finance Ltd, said: “All the guidelines for other financial institutions – internal control guidelines, fund management ethics, automated trading services regulation – apply to virtual asset licensees.
Singapore is also developing its own legislation with a new Financial Services and Markets Bill. Janice Goh, a partner at Cavenagh Law LLP, an alliance with Clifford Chance in Singapore, said: “There is a loophole in the Payment Services Act as it does not regulate providers who set up shop in Singapore but do not provide services in Singapore. The new law requires all VASPs with a place of business in Singapore to be licensed.
An investor in Singapore has also successfully appealed to the court to ban the transfer of a non-vulnerable token (NFT). Dawn is the first in Singapore and Asia to recognize NFT as an asset in terms of trade disputes globally.
Institutional interest
Regulatory frameworks are necessary to gain the confidence of institutional investors in the new asset class. David Kwan, Asia-Pacific head of sales and business development at Nasdaq Markets, said, “Many large institutional banks and investment firms have been preparing for this development for a very long time. When such regulations are introduced, we will see an increasing number of market participants and the maturity of crypto markets.
Kwan then discussed how the crypto sector can learn from traditional capital markets, such as their tried and tested risk models and regulation to protect investors.
“Maybe there are changes that we should use specifically for crypto assets, but ultimately when it comes to investors, they want the same protection no matter what asset class they trade,” Kwan added. “When you’re investing in something, you want to make sure there’s market credibility, and that’s only going to help get more institutional adoption.”
According to the webcast, 6.5% of all Bitcoin will be held by institutions by June 2022 – up from zero a few years ago. Continued institutional demand Coinbase has partnered with BlackRock to bring Aladdin, the wealth manager’s end-to-end investment management platform, to institutional clients from Bitcoin directly to crypto. Coinbase Prime offers crypto trading, protection, prime brokerage and reporting capabilities to Aladdin’s institutional customers who are Coinbase customers.
Joseph Chalom, Global Head of Strategic Ecosystem Partnerships at BlackRock, said, “Our institutional clients are increasingly interested in exposure to digital asset markets and are increasingly focusing on how to effectively manage the operations of these assets.
We may be experiencing ‘Crypto Winter’, but as the poet Percy Bysshe Shelley wrote in his book ‘Ode to the West Wind’, “If winter comes, can spring be left behind?”
For more information on market surveillance, please see Regulation Asia and Nasdaq and Nasdaq Market Insight’s “The Role of Market Surveillance: Building Confidence in Crypto Markets.”
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