Recent Events in the Crypto-world and a Need for Regulatory Oversight

– Subhojit Shome (subhojit@vinodkothari.com)

Introduction

There are two recent events in the world of crypto that warranted this article – the first one, in order of chronology, fundamentally altered the way that a blockchain (the underlying ledger) for cryptocurrency validates transactions while the second exposed how a cryptocurrency, without underlying value, can be used to window dress a balance sheet and lure in investors.

The second incident, of course, refers to the FTX debacle that has received global media coverage and continues to grab headlines. The first event, Ethereum moving to ‘proof of stake’ consensus mechanism, however, may be a more obscure event to the public eye and likely to have caught the attention of only the hardcore crypto enthusiast, fintech departments of financial institutions and the financial stability divisions of financial market regulators and ministries.

This article, to all intents and purposes, is a ‘cautionary tale’ where we use these two events to explore how cryptocurrency, whether deliberately or inadvertently, may build a house of cards and there is an urgent imperative that regulators look beyond PML/ CFT issues, the ‘usual suspects’ when it comes to crypto, and delve into issues surrounding investor protection and market surveillance.