Predictions for Global Cryptocurrency Regulatory Policy in 2022

There was a lot of news about cryptocurrency regulatory policies in 2021. A whole host of governments around the world issued statements on their cryptocurrency regulatory policies. To cap it all at the end of 2021 the International Monetary Fund (IMF) called for a “comprehensive, consistent and coordinated” approach to balancing the benefits of crypto’s underlying technology with regulation required to mitigate its risks. “If we start now, we can achieve the policy goal of maintaining financial stability while benefiting from the benefits that the underlying technological innovations bring.” More recently in 2022 the IMF urged El Salvador to remove Bitcoin as legal tender. Clearly, global regulation and individual state’s policy to cryptocurrencies is of growing importance.

Stablecoin regulation will be the first target

It is almost certain that stablecoins will be the primary focus of any regulation because they are one of the most accessible cryptocurrencies. A stablecoin, is a cryptocurrency that is issued and traded on a blockchain and is pegged to “stable” assets such as gold, reserve currencies, or government bonds. Because of its pegged relationship to tangible assets, this cryptocurrency is intended to be more stable and secure than other crypto assets.

Stablecoins are causing concern among regulators for a variety of reasons, including the basic risk that in the event of a loss in stablecoins, investors are entirely unprotected. Some stablecoins are backed by commercial bonds, which may depreciate against the value of the stablecoin or make it impossible for investors to cash out. In addition, a drop in the value of the pegged asset may prevent stablecoin issuers from meeting the redemption needs of holders.

Investors can quickly liquidate certain stablecoins. This is analogous to the risk of a “run on the bank” phenomenon in traditional financial institutions, in which lending institutions only have a certain percentage of their total assets on hand. Still, when nervous investors rush en masse to withdraw funds, it threatens to cause economic turmoil.

In addition, crypto stablecoins may be viewed as competitors to the US dollar, which regulators fear will undermine the US dollar’s power and status as a global reserve currency. As a result, it’s pretty clear that in 2022, stablecoins will be the primary focus of any regulation.

Competition among lawmakers will slow government regulatory action

Turf war type rivalry between agencies fuels competition between legislators, with inter-agency competition to be the leading rule-maker in the cryptocurrency space. In the US the Biden administration is due to launch a government-wide strategy for digital assets in February, according to reports. This executive order will direct all relevant US federal agencies to assess crypto’s opportunities and risks and submit their findings later in 2022.

Setting out cryptocurrency regulatory policies effectively maintains government credibility while at the same time raising the debt ceiling and watching inflation rise. However, legislators still face intense pressure from various sources to implement new proposed regulations fully. In 2021, many lawmakers failed to take additional steps in the cryptocurrency space, owing to a lack of critical legislative fundamentals and poor opinion polls. As a result, BigONE believes that whether the regulatory policy in the field of crypto assets can be implemented in 2022 will also necessitate close collaboration among governments from various countries to develop a practical regulatory policy plan agreed upon by the majority of them.

Cryptocurrency regulatory policies and existing regulations

Many people including the IMF believe that stablecoins pose risks to the global economy and individual investors, so swift action is required to regulate them. And in the US whether it’s the Fed, SEC, or Treasury Department, officials say they plan to regulate them. BigONE believes that global regulators will try to intervene using their powers if the policymakers believe tackling what they see are risky and unstable crypto assets.

Of course, just as El Salvador threatens to divide policymakers over their adoption of Bitcoin as legal tender, there are opportunities for forward-looking states to embrace crypto. Notably Gibraltar is looking to become the world’s first cryptocurrency hub, according to a recent report. While experts have warned that Gibraltar could face sanctions by countries such as the US if its regulators end up giving legal approval to crypto firms, Albert Isola, Gibraltar’s minister for digital, financial services and public utilities, says they have a strict regulatory regime in place to weed out bad actors. “I don’t understand how there can be any increased risk in Gibraltar, when you can go to any other European country today and run exactly the same business without being supervised, without being licensed, and without being regulated. So how can we be more exposed by regulating them? It’s completely the opposite,” Isola says.