Following the failure of cryptocurrency exchange FTX, JPMorgan has outlined significant changes it anticipates for the regulation of the cryptocurrency business.
A number of new regulatory efforts, including those emphasising custody, customer asset protection, and transparency, are planned by the international investment bank.
The collapse of FTX and its sister company Alameda Research “has not only created a cascade of crypto entity collapse and suspension of withdrawals,” according to global strategist Nikolaos Panigirtzoglou, but it is also “likely to increase investor and regulatory pressure on crypto entities to disclose more information about their balance sheets.”
Panigirtzoglou then went on to enumerate the key adjustments JPMorgan anticipates following the FTX disaster.
He firstly wrote:
“Existing regulatory actions that are already under progress are probably going to be advanced. ”
The Markets in Crypto Assets (MiCA) bill of the European Union, according to the JPMorgan strategist, is anticipated to be approved in its whole by the end of the year and to go into effect sometime in 2024.
He added that “regulatory proposals drew increased focus following Terra’s collapse” with regard to the U.S.
“We predict that after the FTX collapse, there would be an even greater sense of urgency. ”
The question of whether to classify cryptocurrencies as securities or commodities is at the focus of a significant dispute among U.S. regulators, according to Panigirtzoglou.
Gary Gensler, the chairman of the U.S. Securities and Exchange Commission (SEC), has stated that unlike the majority of other crypto tokens, bitcoin is a commodity.
To make the Commodity Futures Trading Commission (CFTC) the primary regulator of crypto assets, various proposals have been presented in Congress.
The expert stated: “The primary benefactors post FTX crash are institutional crypto custodians… Many retail cryptocurrency investors have already shifted to self-custody their cryptocurrencies utilising hardware wallets.
These reputable custodians will probably gain control over the comparatively smaller crypto-native custodians and crypto exchanges over time.
The JPMorgan research continues, stating: “New regulatory initiatives are anticipated to develop focusing on unbundling of broker, trading, lending, clearing, and custody activities as in the traditional financial system.”
“The most significant effects of this unbundling will be seen by exchanges like FTX that merged all these activities, raising concerns about the protection of consumers’ assets, market manipulation, and conflicts of interest. ”
In addition, the JPMorgan strategist stated that “New regulatory measures are likely to develop focusing on transparency demanding regular reporting and auditing of reserves, assets, and liabilities across significant crypto entities.”
The investment bank also noted that “Crypto derivative markets would likely see a shift into regulated venues with CME emerging as a winner”
Decentralized exchanges (DEX) were also covered by Panigirtzoglou, who noted that before decentralised finance (defi) becomes widely accepted, they must overcome a number of challenges.
Due to slower transaction speeds or the need for trading methods and order sizes to be traceable on the blockchain, the JPMorgan strategist believed that larger institutions would not normally be able to use DEXs for their larger orders.