Blockworks exclusive: Albert Isola MP from Gibraltar, Minister for Digital and Financial Services, sat down to discuss trust and cryptocurrency.
It is clear that the faith in crypto has been shaken over recent weeks.
Both retail and institutional investors have been swept by panic and a dramatic market crash, causing them to reconsider holding risk-on assets in the face of evolving macroeconomic conditions.
The bankrupt crypto lender Celsius continues to face disgruntled users as it tries to navigate leveraged positions.
The collapse of the Terra ecosystem, saw its algorithmic stablecoin being de-pegged from a 1:1 ratio with the US Dollar in what was called ” reckless Financial Engineering” just weeks before.
According to Blockworks Research data, crypto’s bellwether asset, bitcoin, has fallen 55% to date and 70% since its November 2021 high of almost $69,000 to $21,300.
Although this is not the first time that the market has experienced freefall, many are asking how it could have been avoided and what steps should be taken to avoid future episodes.
Some, like Albert Isola MP (Gibratar’s minister of digital and financial services), believe regulation is the key to providing adequate investor protections and helping to smooth out volatility over a longer-term horizon.
When asked about crypto’s recent turmoil, Isola said that trust was one of the major issues we will be facing. When people realize that crypto and its space are volatile and subject to fluctuation, just like traditional financial services markets, they start to wonder, “How could this happen?” Trust is what it all boils down.
Balanced regulation was cited by the minister as a way to rebuild trust. I believe regulation is more crucial in these difficult times. Isola stated that regulations must improve, not get worse.
Gibraltar studies lessons learned
Isola says that regulators in the world will now be looking closely at firms like Terra or Celsius to understand how they got there, their behaviour during crises, and what they are doing to fix it.
Minister: “In all these things, it’s not what happens — it is how you react to what’s occurred that’s important.”
Gibraltar is a hub for established and budding crypto and blockchain businesses. In 2018, Gibraltar implemented one of the first licensing systems for the industry.
In April, the British overseas territory amended legislation to combat manipulation. It asked crypto firms to respect the markets they operate in and to monitor for suspicious behaviour.
A former naval garrison on the southern tip of Spain may soon allow a takeover by Valereum of the Gibraltar Stock Exchange. This would be a world first, which would see crypto, bonds, and equities trade under one roof.
Isola says that all services, regardless of whether they are traditional finance, online gambling, or crypto, must be regulated. The policy added by Isola not only protects consumers but also preserves the reputation of the jurisdiction.
Gibraltar has 15 major crypto companies operating within its 6.7km 2 borders. These include Bitso and FTX, Huobi, Bullish, as well as the exchange-backed Peter Thiel, co-founder of PayPal. Isola argued that lessons learned from other jurisdictions such as Singapore and the European Union are a good example of how to balance innovation and consumer protection.
According to Isola, it is because Gibraltar has favourable regulations that crypto- and blockchain businesses around the globe are drawn there.
He stated that “all of us [firms, regulators] are interested in looking after consumers and doing it properly.” “Ultimately, I believe our desire is to have an international set of standards that can be applied throughout the globe.
Isola said, “At minimum let’s have one set so everybody is playing by basic rules.”
Stay ahead of the curve
Some have even argued for greater oversight and control of the way Celsius and Terra behaved on the market.
As the number of crypto-related public stocks grows, this could have prevented any spillover to other industries.
Isola was asked about the difficulty of keeping up with technological and financial innovation while also metering appropriate legislation.
Minister said, “Innovating is by definition doing something new and scary.” “But in all instances, innovation is driven forward through the experts in the field.”
Even regulation supporters would love to see government bodies act faster to establish clear rules.
Isola stated that “in terms of regulators, I think all industries would tell you they wished they could get things done faster, that’s the overriding complaint consistently.” “To do things correctly, unfortunately, takes time.”
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