As global cryptocurrency regulations unfold, exchanges with regulatory compliance will lead thenext wave of institutional and individual investments.
As regulation looms over the cryptocurrency industry, exchanges are moving quickly to receive licensing in an effort to maintain their operations. Many countries have begun the initial stages of instituting regulatory measures on the cryptocurrency industry, and regulators have found that the easiest way to regulate the industry is to regulate the exchanges.
Common sense regulations are vital for the next stage of growth within the cryptocurrency industry, as many individual and institutional investors are on the sidelines waiting for regulatory clarity before introducing their money to the markets.
According to a survey recently conducted by Thomson Reuters, one in five of its financial service clients are considering trading cryptocurrencies at some point this year. Currently, lack of regulatory certainty from government agencies, like the US Securities and Exchange Commission, is leaving questions as to the safety of the markets and the security of exchangesand custodial services. Institutions will only use reputable and regulated services to invest their money.
In 2018 alone, over $731 million has been stolen from cryptocurrency exchanges, including the notorious $500 million Coincheck hack. After the hack occurred, Coincheck admitted that the weaknesses in their exchange’s security were largely due to the lack of talented and experienceddevelopers at the company.
Coincheck CEO Koichiro Wada spoke to Bloomberg, saying:
“We were aware we didn’t have enough people working on internal checks, management and system risk. We strived to expand using headhunters and agencies but ended up in this situation.”
South Korean cryptocurrency exchange Coinrail was the next exchange to fall victim to hackers, losing $40 million. Following these hacks, the Japanese and South Korean governments conducted numerous investigations that found significant malpractices being conducted by the exchanges, which were to blame for the weaknesses in their security.
The lack of regulation on exchanges was a major factor in the loss of millions of dollars’ worth of cryptocurrency. Regulatory authorities in both South Korea and Japan have moved swiftly to regulate exchanges much like banks are regulated, which will ensure the safety of users’ funds.
Some of the regulatory measures implemented include mandatory KYC and AML practices, governmental oversight of internal practices, and mandatory safety measures including cold storage, all of which will inhibit theft.
In an effort to be in countries that offer friendly, common sense regulatory measures for cryptocurrency exchanges, some of the world’s most popular exchanges have moved to Malta, a Mediterranean island. The country’s government has put in place common sense licensing that allows exchanges to grow and experiment, all underneath the watchful eye of the government.This environment is ideal for cryptocurrency exchanges, which is why Binance and Okex have both moved their operations there.
In order to operate with complete safety and transparency, Coinbase recently received licensing in the United States, which has made many investors feel far more comfortable investing in the markets through a regulated venue.
New cryptocurrency exchanges are also taking measures to be fully compliant within the regulatory landscape. An example of such exchange would be Covesting. The copy-trading platform has secured full operational licensing in the EU prior to the official platform launch and applied for their Digital Ledger Technology (DLT) license from authorities in Gibraltar immediately following their ICO. The exchange expects to receive their DLT license in thecoming months in preparation for their official launch in Q3 2018. Also, receipt of the DLT license will allow for Covesting to have a fiat onramp for their clients, which will allow investors to purchase cryptocurrencies with ease.
Soon, an unlicensed cryptocurrency exchange will be equivalent to an unlicensed bank, and simply won’t be practical or safe for investors to use. As the regulatory landscape becomes clearer, exchanges that are fully compliant with regulations will rise above the rest and usher in a new era of success for the cryptocurrency markets.