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Regulating Crypto: Why Existing Federal Regulations Need to Catch Up to Protect the Retail Investor

Since the collapse of FTX, we’re seeing the predictable knee-jerk reactions clamoring for increased regulation of the crypto market among people who, quite frankly, don’t know any better. Regulation, their argument goes, will help reduce crypto’s volatility and protect naive investors from bad actors in the crypto space.

This argument fails to recognize an important fact — there are already plenty of regulations on the books that apply to the crypto industry. That’s not what’s missing. What’s missing is the ability of federal regulations to “catch up” to crypto and properly adapt.

Let’s Help Existing Regulations Do More

The fact is that the regulatory system needs a complete overhaul. Banks are still using technology from decades ago — that was created before cryptocurrencies even existed — to enforce regulations. Clearly, it’s not up to the task. Existing technology makes it nearly impossible for governments or regulatory agencies to track the billions of transactions that occur daily.

For this reason alone, we need to move regulation to a digital or blockchain system. Today, we still scribble a barely recognizable digital “signature” to verify our identity, which means next to nothing, when we have software at our disposal to legitimately verify transactions and regulate the industry.

This would allow audits to happen quickly and at the push of a button rather than taking weeks as they do now. CertiK, a crypto token system that allows for the auditing of cryptocurrencies, is just one example of the type of system we need to embrace.

Fragmented Regulation Enforcement & Methods is Leading to Uneven Results

Crypto regulation is not a one-size-fits-all affair around the world. The U.S. is generally considered the leader in regulations that are on the books but is also seen as the slowest to adapt to new developments.

Europe can generally adapt faster, largely because their approach has been to simplify, rather than complicate, the regulatory process. And it’s no secret that European countries are widely considered to be more crypto-friendly.

When we compare different countries or compare the U.S. and Europe as a whole, we see a marked difference in both the willingness to adopt regulation and the ability to adapt.

This leads to officials who favor putting the brakes on the adoption of crypto until they’ve had a chance to catch up. Generally, the slower they are, the more they seek to slow crypto down.

Contrast that to Gumbo’s approach, which has always been to remain small and as nimble as possible. This gives us the ability to move and adapt quickly and routinely outpace others in the industry.

Bottom Line: More Regulation Probably isn’t Coming…and it’s Not the Answer Anyway

The fall of FTX has many clamoring for a crackdown on crypto, insisting on a response that layers more and more regulation on an industry that’s already well-policed. The reality is that increased regulation is very unlikely to come. And, as we’ve stated many times already, it’s not the real issue or the real solution anyway.

The real issue is one of education. Most people who invest in crypto don’t know enough about it to make smart decisions regarding its future. In fact, many of these investors are jumping into this space because they’re simply chasing headlines. They lack the knowledge not only about crypto but about finance, in general, to accurately assess the thing they’re investing in.

When we let the people who are making the most money from crypto make the rules, it’s too easy to abuse the system. And the fact that most people don’t understand it enough makes it even more difficult to spot any abuse.

It’s our position at Gumbo that we need to adapt existing regulations and get systems in place to help what’s already on the books do more, not push for additional regulation that isn’t likely to ever serve its intended purpose.

Gumbo is a cryptocurrency hedge fund dedicated to increasing investor Bitcoin holdings, paying dividends monthly, and only profiting when their investors do. All investments are managed 24/7 by crypto experts. To learn more about Gumbo and investing in Bitcoin, contact our team.


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