Regulators Should Bring the Best of Stock Market Regulation to Crypto Investments
Former MIT cryptocurrency professor Gary Gensler, more widely known today as the new chairman of the US Securities and Exchange Commission, wasted little time taking office testifying before a House committee. United States this month that “the crypto asset market is the one that could benefit from better investor protection.” Clearly, wild swings in price volatility, up to 30% on some days, would put the spotlight on challenge even the most relentless crypto investor.
But let’s not forget the importance of stronger crypto regulation for the benefit of everyday Americans who invest in cryptocurrencies through the stock market. Several state-owned companies, two dozen according to some analyzes, now have cryptocurrencies on their balance sheets. Additionally, an analyst from BCA Research, a leading independent research firm, said last week that “there is a strong positive correlation between bitcoin and the S&P 500 index.”
And more and more crypto investment vehicles are coming from some of the biggest players on Wall Street: BlackRock filed a request to add Bitcoin futures to two of its investment funds and in April Morgan Stanley added Bitcoin has 12 investment strategies in mutual funds.
With more than half of Americans invested in the stock market – whether through ETFs, mutual funds, 401 (k) s, 529 plans, and pension plans – regulators and Congress would be cautious to make the best of equity market structure and regulatory practices. to the crypto investment markets.
Michael Hsu, Interim US Comptroller of the Currency (OCC), testified before Congress that the OCC, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) are in talks on an “interagency sprint team” on regulation cryptographic. It is critical that US regulators and lawmakers get a head start on innovation policy and investor protection in a globally competitive landscape, with regulators in Canada and Brazil endorsing more crypto ETFs. early this year and further growth expected in the cryptocurrency ecosystem.
Here is a roadmap of equity markets that regulators should consider in their decisions:
- Add cryptocurrency questions to the FINRA Series 7 General Securities Representative exam. Crypto investing is no longer on the sidelines. As Ben Emons of Medley Advisors noted last week, investing in cryptocurrencies is “here to stay” with a growing interconnection between Bitcoin and the stock markets. Investment advisers and brokers now need to be as knowledgeable about this asset class as they are about stocks and bonds.
- Encourage financial literacy and suitability assessments of relevant cryptocurrency investments, using, as an example, the work of the Options Industry Counsel, which educates and tests options.
- Promote the adoption of automated trading for the execution of trades. Electronic market makers have dramatically reduced the cost of trading and stock market volatility and have proven their ability to provide superior price discovery, especially across all asset classes. When markets are volatile, reliable liquidity is provided by automated traders to smooth the markets, especially electronic market makers who have obligations to buy when no one else wants to buy, or vice versa, to catch the market. famous falling knife.
- A strong cop on the beat. Reviews and execution are a powerful deterrent against bad actors. A self-regulatory organization (SRO) for crypto, similar to how FINRA protects market integrity, should now be seriously considered.
Global markets, whether stocks, bonds, futures or currencies, have long been interconnected. With retail investors increasing exposure to cryptocurrency investments, even indirectly in the stock markets, it is more important than ever that retail investors can have confidence in the regulations and market mechanisms. Regulators must work with Congress, automated trading experts and market participants to ensure the same level of leadership and accountability known and appreciated in the most established markets.
Kirsten Wegner is CEO of the Modern Markets Initiative, a Washington, DC-based education and advocacy organization for innovation in today’s markets.