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Guest Opinion

Sensible regulations vital for crypto

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The time has come for the U.S. to adopt sensible regulations for the cryptocurrency world.

The blockchain technology that underpins digital assets and decentralized “Web3” applications has been developing since 2008. Through many ups and downs, the ecosystem has matured. Alongside financial trading activity, stablecoins are gaining traction in payments, while startups innovate decentralized solutions in a variety of sectors. We don’t know which will succeed, but we do know that success will require trust.

Regulation is an important mechanism to build trust in new markets. It will help distinguish those firms willing to take responsible steps to protect their customers and others from those exploiting loopholes or engaging in shady conduct.

Worries that such guardrails would inevitably depress market activity, chill innovation, or send industry participants fleeing to less stringent jurisdictions are unfounded. Market participants want guidance about how to comply with commonsense obligations. That doesn’t mean rewriting all financial regulation from scratch. However, it has become clear that some legislation is needed.

It’s also wrong to think that regulating cryptocurrency means legitimizing abuses and unsustainable speculative activity. Protections against market manipulation, fraud, money laundering, and other illegitimate conduct are essential. Today, offshore actors with a history of violations and other questionable behavior are in the same boat as U.S.-based firms with a strong record of customer protection. Only when the bad actors are forced to change or excluded from the market can there be a solid foundation for trust. That requires regulatory boundaries.

While there are still important details to be negotiated, several promising bipartisan bills on digital asset market and stablecoin regulation have been introduced in Congress during the past two years. The substantive differences between different sides are not that great; what has been lacking is the political will to move forward.

New technologies and market activity have often necessitated updates to financial regulation. The Great Depression, the Global Financial Crisis, and other crashes provided the blueprints for new guardrails that supported renewed growth and innovation. With appropriate rules, the U.S. could be the world leader in blockchain-based financial markets, and the innovative applications drawing on them. Regulators can help prevent illicit activities while allowing legitimate transactions to proceed smoothly.

History teaches us that innovation is compatible with reasonable boundaries. Growth of the internet sector exploded when the U.S. provided a clear road regulatory roadmap. That meant adding some new obligations, removing others, and providing guidance when there was ambiguity about how existing rules applied.

With thoughtful regulations, we can create a future where crypto innovation soars, risks are controlled, bad actors are excluded, and users are protected.

Kevin Werbach is a professor of Legal Studies and Business Ethics at the University of Pennsylvania’s Wharton School.


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