• July 21, 2024

Why Regulations Are Needed to Combat Scamcoin

Over the past few years, the cryptocurrency market has been making headlines, seemingly for all the wrong reasons. After a veritable boom of crypto investing beginning around 2017 came what some considered an inevitable crash with the bankruptcies of well-known crypto platforms FTX, BlockFi, and Voyager Digital. This upheaval in the crypto market has pushed both businesses and consumers to call for tighter regulations, not only to ward off the future collapse of similar platforms but also to combat the issue of scamcoin.

Scamcoin has been an issue among crypto investors since the emergence of cryptocurrency itself. As the name suggests, scamcoin is a fake cryptocurrency created to garner quick money for developers, who then swiftly disappear just as consumers begin to realize they have been tricked. 

Since its advent, cryptocurrency has felt similar to a “Wild West” approach to investing, with little (if any) oversight from federal regulators. Given the recent issues with the crypto market and the ongoing problem of scamcoin, many are calling for the chaotic climate to end and for regulatory bodies like the US Securities and Exchange Commission (SEC) to step in. 

Support for aggressive oversight

When called upon to begin regulation of the crypto market, the SEC responded with a strong push, taking 24 cryptocurrency enforcement actions in the first half of 2023 alone. The agency supported these moves with claims that regulation prevents future fraud, market manipulation, and scam operators by forcing crypto providers to disclose more detailed information about their cryptocurrencies to consumers — and the market in general. 

For many, the stronger regulatory actions enacted by the SEC were a long time coming, and possibly overdue. “Regulatory oversight is critical if consumers are going to safely invest in cryptocurrency,” says Shane Rodgers of Singapore and US-based PDX Global Pte. Ltd.. “As far as we can see, few if any safeguards were in place, and this has to change if the industry is to survive.” 

Ethical crypto businesses like PDX Global, which offers the PDX Coin digital currency project, support the oversight of bodies such as the SEC. They argue that further regulations only serve to strengthen the crypto industry overall by working to eliminate bad actors, scamcoin, and misinformation that has weakened the entire crypto landscape. 

In 2021, before the SEC stepped up its regulatory actions, crypto scammers took a record $14 billion from consumers and investors. With so much hype surrounding the decentralized nature of the crypto market, many people were seeing others making significant gains in a less regulated arena and wanted to get in on the action —- regardless of how insecure it may have been. 

Now, however, many consumers have seen firsthand how risky decentralized finance can be without proper regulations in place. As a result, they are willing to consider the oversight of a regulatory body to keep their investments and their actions within the crypto market more secure. 

What regulation means 

With crypto markets being the “renegade rebels” of the financial sector, the very thought of regulation may confuse — or even anger — some segments of the market. By defining what is meant by regulation, those in favour of regulatory oversight can help steer the market and the players in that direction. 

“Today there is much confusion about the target of regulation. Will the agency regulate the crypto-asset itself, or will it regulate the company that builds and manages the crypto asset?” Rodgers asked in FinTech Times

Agencies such as the SEC exist to regulate securities, which would therefore carry over to regulating companies that build and manage cryptocurrency assets. The SEC would also have an interest in regulating any crypto asset attempting to prove it can function as currency. Other companies that provide tokens that serve another purpose, such as utility coins, another regulating body — such as the CFTC (Commodity Futures Trading Commission), for instance — may be better equipped to handle oversight. 

Whatever regulation is put forth, and whatever body is chosen to provide oversight, it will be up to crypto companies themselves to abide by the guidelines to move the crypto market forward. “At PDX, we are run by a mature and experienced executive team, with a very conservative stance, including with respect to regulation,” Rodgers explains. “We firmly believe crypto regulation has to be at the same level, or greater, as it is for the securities and banking industries.” 

Rodgers’s opinion is one that many in the crypto world share, though they are cautious against regulation being too “one size fits all.” The favor of the crypto industry seems to point towards reasonable regulation that would help consumers avoid the pitfalls of scams while still keeping crypto accessible. 

The future of regulation 

“I do know we need guardrails and actual laws — black and white regulation from Congress. It’s good for the industry, accelerating financial growth, and protecting against fraud, tax evasion and money laundering,” Rodgers said to FinTech Times. 

What the future holds for crypto regulation largely depends on the governing bodies themselves. Nevertheless, it is clear that most in the industry agree that the time for such necessary regulation has already arrived.

Other countries in Europe and Asia have found ways to regulate cryptocurrency through approaches that do not hamstring industry innovation. In fact, in the case of Singapore — which many are looking to as a model for regulatory oversight — there has been an increase in consumers adopting crypto as a means of currency.

Currently, as bodies like the SEC struggle to figure out how to corral this new money market, the regulation of the crypto space looks more like a patchwork quilt of different ideas and approaches. With this confusion comes market volatility and people pulling away from the market out of fear. By looking to other successful models, such as the approach used in Singapore, regulatory bodies within the United States can form a more cohesive regulation plan and set the crypto market on a bright future path. 

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