Building better consumer awareness efforts and adhering to applicable compliance requirements could lead to improvement in this area. Legislators and regulators will be watching for instances where consumers are defrauded or misled and suffer significant financial harm by using crypto-assets. We can expect that certain elements of suitability and appropriateness will become important.
The issues associated with crypto-assets and investor protection are exacerbated by price volatility in certain currencies. For example, in terms of market manipulation and exchange risk management mechanisms, there is varying maturity in the market and additional risks posed via high leverage offered.
Pricing variations for the same asset on global exchanges are due primarily to differences in liquidity, jurisdictional onboarding restrictions, and bank limits of exchanges on wire transfers and capital controls. These tend to limit arbitrage opportunities to parties actively trading on multiple exchanges.
Asset illiquidity as a business is also an area where scam projects are seen and garner media attention.
Stability of the financial system, sovereignty and monetary policy
The financial system may be subject to risks from crypto-assets to the extent that both are interconnected; spill-over effects may also be transmitted to the real economy. Crypto-assets may have implications for financial stability and interfere with how payments and market infrastructures function, as well as implications for monetary policy.
The concept of a global digital currency can have both political and economic implications, and be a risk to national sovereignty. There are concerns about virtual dollarization of developing economies, as well as the loss of monetary policy tools in developed nations if there was widespread adoption of digital assets as payment tokens.
Globally, the tax policy and tax evasion implications have been largely unexplored in relation to crypto-assets, although they form an important aspect of the overall regulatory framework. Jurisdictional differences create a tension where regulatory arbitrage may take place – highlighting the need to develop tax guidance.
Other regulatory implications
In a world where financial services and products can be customized and finely targeted to fit the specific needs of customers, money could be facing its unbundling moment with the emergence of crypto-assets.