Over the past few months, the US Securities and Exchange Commission has championed an offensive against the major crypto firms. Not only has this trend cast a huge shadow over the future of crypto and other digital assets, but it also symbolizes the importance of regulation. No matter how beneficial an innovation is, it must adhere to existing rules to encourage adoption.Â
On July 13, 2023, an order was issued by Southern District of New York Judge Analisa Torres in SEC v. Ripple Labs, Inc. The SEC submitted that Ripple Labs had issued unregistered securities to investors. However, Ripple argued that its XRP token wasn't a security as it wasn't an investment contract under the Howey test used by the SEC for determining investment contracts.
SEC closely scrutinized various blockchains to determine which of them were decentralized in real terms and which weren't. Various crypto projects, including exchanges and stablecoins, came under the radar. This underlines how important adequate regulation is.Â
Why crypto regulation is a must-haveÂ
Like AI and other fast-growing technologies, crypto requires regulatory oversight to ensure safeguard investors and the finance sector from the risks of illicit crypto operations. When crypto first emerged, there wasn't much emphasis on having a regulatory framework. But given its current status, the need for crypto firms to adhere to set rules has skyrocketed.
As mentioned, a regulated crypto space is ideal for investors particularly because they're less likely to encounter fraudulent activities like Ponzi schemes and scams. A 2023 study conducted by the PEW Research Center found that 75% of Americans aren't convinced about crypto. If every crypto firm was duly registered and played by the rules, it would boost people's confidence. This translates into wider adoption.
Regulatory compliance - The INX example
Every industry needs regulatory oversight to ensure fair play and growth. Being a nascent space, the crypto field requires laws to protect stakeholders and potential investors. Crypto firms must also comply with regulations. As recent times have shown, the time for regulation is long overdue.
However, INX firmly considered the risks of running an unregistered operation and chose to fulfill all regulatory obligations. The project decided to take the regulation route in 2017 during the initial coin offering (ICO) trend. The project is fully regulated, provides users with asset trading services, security tokens trading, and a few more.
INX collaborated with the SEC to have a legal ICO. That move led to the company hosting the first SEC-backed ICO two years ago. It generated a whopping $85 million from over 7,000 investors.Â
Renata Szkoda, INX's chief financial officer, said in an interview with Blockworks last year that companies need to think critically before launching tokens, a comment that's still relevant in solving today's regulatory fiasco. When nearly all major crypto companies are facing probe, INX stands out. The company has been on the right side of the SEC right from start and this shows how crypto regulation is vital.
How regulatory compliance could make a project preferred for acquisition
In today's scenario, if any project is known for adhering to regulatory norms, major players are going to prefer it when it comes to acquisition. We could again take INX as an example. Given its unique status as a regulated crypto platform, Republic, already an investor in INX, offered to acquire the project in a $120 million deal.
Buying a well-regulated platform means access to a regulated platform that not only resolves the acquirer's current legal woes but gives them a chance to unlock the lucrative future of crypto.