Every week we receive more news about crypto scams and this will likely not end anytime soon. The question is will regulations help?
Lately, Jordan Belfort who some call the Wolf of Wall Street went on the Russell Brand Show and said:
“Right now in the world of crypto, there is massive fraud everyday on unprecedented levels. I can’t believe this is happening. Everyday there are pump and dump schemes making my stuff look like child’s play.”
So, what are pump and dumps in crypto? These are protocols with short lived cycles where generally the creator of a token has a large supply of tokens for the project he/she founded who sell their tokens after they’ve made the profits they’re looking for. And in any circumstance when a whale sells their tokens, this cause the price to dump.
So, why do these pump and dump schemes happen? And why is crypto a hotspot for pump and dumps? Well, according to a research publication released from crimesciencejournal.biomedcentral.com, this is because it is an unregulated market. An excerpt from the paper reads:
“The lack of regulation, combined with their technical complexity, makes them an attractive target for scammers who
would seek to prey on the misinformed.”
So, an unregulated market cuts both ways. There are extraordinary opportunities for rewards as well as incalculable risks to avoid. One simply needs to be informed about the many risks in crypto due to lack of regulation. As we’ve discussed for there are countless scam in cryptocurrency. Yet there are also tremendous opportunities for wealth creation when one considers yield farming, liquidity pools, and ROI, for example.
Can we trust governments to regulate?
Does regulation mean these things would go away? Not necessarily, but in general it’s newer and less regulated markets that present the most opportunity for ROI. So, if regulation were to happen, we need to consider if we are serious about paying the price. Should we trust governments across the world to regulate crypto for us? Even regulated markets in the United States are full of scams and criminal activity. In another excerpt from the Russel Brand Podcast, Jordan Belfort said:
“Yeah, what I did was wrong. But on the degree of wrong, compared to 2008 – forget about it. I was a saint compared to the market crash of 2008. I didn’t bankrupt Iceland and Greece and bring the entire world financial to it’s knees. And then ask the taxpayers to bail me out.”
When the 2008 housing markets in the U.S. crashed, investors profited while homeowners on mortgages were displaced. So, there is no pretending that the global financial system is without fault.
On the other hand one can say that the regulations have certainly made financial scams more difficult and would do so for crypto as. well. The difficulty in regulating crypto lies in understanding the technology behind it. This means that the people who come up with the regulations will also have to be technologically savvy.
Regulations to what extent?
It is clear that crypto needs regulations to a certain degree. The current situation is a wild west and people need to be protected from scams. So regulations would be a good thing. The question is to what extent. Regulations in crypto should not threaten the decentralized nature of the digital asset, but this might be exactly where the problem lies. The decentralized crypto threatens the power that governments have over the current financial system. They will not want to give up that control.
If governments accept cryptocurrencies, they will have to accept the fact that they will have alot less say on what is going on in the financial world. Countries like China have already taken measures against crypto for exactly this reason. Other countries like El Salvador have embraced cryptocurrencies. It will be interesting to see how other countries will deal with crypto regulations.