Regulation must change to solve a clash of two titans
New data from CUBE, reveals that despite the increased regulatory focus on cryptocurrencies, discussions around digital assets and sustainability make up less than 0.1% of regulatory issuances in 2022 so far.
Although global regulators are advocating for a greener financial system and actively working to bring cryptocurrency under its wing, the negative environmental effects of mining crypto have clearly been overlooked. The same is true for large financial investment banks who – will touting ESG credentials – are simultaneously opening up their product suite for crypto. The traditional financial mainstream poses difficult questions for sustainability, especially for Bitcoin and Ethereum. For example, the Proof-of Work (PoW) model used by most leading cryptocurrencies is notoriously energy intensive and will have long-term negative impacts on the environment.
However, despite the mutual exclusivity between the two titans of the modern financial world, it’s widely known that firms who don’t prioritise both ESG and digital assets now, may not be relevant in years to come.
Therefore, now is a critical time for regulators to work together and consider the impact that regulation could have on making a truly sustainable future for both on a global scale. Without increased focus and regulatory issuance in this space, firms with cryptocurrency offerings will lack guidance on what measures they should take to curb the environmental risks associated with digital assets – and little incentive, as well.
Ben Richmond, CEO of CUBE Global comments: “As society and traditional financial services move towards welcoming cryptocurrencies into the mainstream, regulators are moving fast to create new regulations or broaden existing parameters to protect consumers and the wider economy.
“However, it’s clear from the data that the issue of sustainability within crypto has been overlooked. In order to solve the conflict between cryptocurrencies and climate risk, global regulators will need to drive forward regulation to ensure that both can thrive without undermining the other. Already there are aspects of ESG and crypto that do work in tandem, socially, it supports the unbanked, giving people without accounts access to digital wallets that can break the cycle of financial exclusion. Despite this, failing to address the environmental impacts will lead to an inevitable clash of two titans that could set the trajectory of the modern financial world back significantly.
“Almost as important, is that this approach needs to be tackled on a global scale. If left to develop on a localised basis, VASPs and compliance teams will not only be faced with a complex sustainability issue, but more generally a web of siloed regulation across multiple jurisdictions that will stunt rather than inspire innovation.”
This release includes data from Cryptopia: Regulation & Crypto on a Cliff Edge. The report harnesses CUBE’s AI-powered, golden source of regulatory data, and collects and analyses more than 15,000 data points on cryptocurrencies across global financial regulators with a view to better understand the regulatory focus.