A Case for Sensible Crypto Regulation

Netherlands-based crypto exchange LiteBit announced recently that it is ceasing operations and transferring its clients’ assets to BitVavo.

LiteBit’s press release specifically refers to the complexity of crypto-related regulation, the costs of complying with regulatory requirements, and the uneven international playing field due to inconsistent levels of regulation, as major factors affecting LiteBit’s viability.

Although LiteBit is not a crypto lender, offering only on-chain staking, crypto lending platforms face the same challenges. While specific national regulatory systems are more permissive and light-touch than others, many jurisdictions impose onerous compliance burdens on all financial firms. Often, these are exacerbated by a lack of understanding of crypto finance and its underlying technologies, combined with losses to customers from numerous irresponsible, or outright fraudulent, crypto actors.

The European Union’s Markets in Crypto Assets (MiCA) directive, while widely considered to be a reasonable and well designed regulatory package, is open to interpretation by EU member states; the nature of EU Directives is that their interpretation in national law may vary significantly across the EU, as long as its basic requirements and limitations are met. Other states have far more onerous and inconsistent rules.

Regulation is not punitive by design. It aims to protect consumers and other participants and stakeholders in financial markets, by improving stability through rules. Unfortunately, lawmakers and regulators are often under-informed about rapidly developing technologies such as crypto. They are also susceptible to creating heavy-handed, excessive rules as a result of real or even perceived abuses or failures by market actors (we in no way imply that either of these were the case with LiteBit). Such excessive rules can quash innovation and stifle competition, not least by excluding smaller and new industry participants who cannot afford the costs of complying with rules that may not apply to them at all.

The Crypto Credit Association’s position is that the primary way to constructively inform new regulation, and to help forestall unnecessarily burdensome rules that will contribute to more company failures, is for all crypto lending providers, platforms, and networks to clearly and publicly adopt and implement proper credit risk management, financial governance, and security practices. This includes traditional finance-oriented standards such as those issued by the Basel Committee and FINRA, as well as evolving crypto-specific credit risk good practices.

The CCA is a not-for-profit industry association representing the crypto lending sector. We provide guidance on good practice for lenders and borrowers, support education of regulators, and coordinate industry action to ensure the crypto lending sector is appropriately represented and not unduly disadvantaged by compliance rules.