The Crisis of Crypto Mortgage and Loan Spread, and the Global Regulatory is Approaching

Abstract: in early May, the collapse of Terra (LUNA) and stablecoin Terrausd (UST) and the crisis of cryptocurrency loan platform have spread to the entire cryptocurrency market. This weekend, Bitcoin fell below $20000 for the first time since 2020. Since April, the total market value of cryptocurrency has shrunk by more than $1trillion.

 

Downtown of the Crypto Market

In early May, the collapse of Terra (LUNA) and stablecoin Terrausd (UST) and the crisis of crypto lending platform have spread to the crypto market. This weekend, Bitcoin fell below $20000 for the first time since 2020. Since April, the total market value of cryptocurrency has decreased by more than $1trillion. Participants in the crypto industry are in a mess. Global policy makers such as the United States and the European Union once again put the urgency of regulation on the agenda, especially in the cryptocurrency mortgage and loan business.

According to Fortune Magazine, when testifying to the European Parliament, Christina Lagarde, President of the European Central Bank, made it clear that the cryptocurrency mortgage and loan business must be regulated together with Bitcoin.

When referring to the Crypto Assets regulations that will take effect in the whole EU in 2024, Lagarde believes that a potential second follow-up framework is already needed due to the current development speed of the cryptocurrency industry.

She said: “MiCA II should regulate the staking and lending activities of encrypted assets, and these activities will certainly increase. These innovations in undeveloped and unknown fields put consumers at risk, and the lack of supervision often leads to fraudulent and completely illegal valuation requirements, as well as investment and criminal transactions. Mica I will not cover Bitcoin, but for mica II, we hope to take this into account.”

 

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The Crisis of Celsius

Lagarde’s speech came a week after securities regulators in Texas, New Jersey, Alabama, Kentucky and Washington had investigated the decision of the Celsius network to stop customers’ withdrawal.  On June 12, Celsius published a blog post announcing that it would stop withdrawals, as well as its swaps and transfer products, on the grounds of “extreme market conditions”. Rumors about the company’s bankruptcy quickly spread on social media, causing panic and selling in the market. Following Celsius, Babel Finance, headquartered in Hong Kong, also suspended the withdrawal.

Howard Fisher, a former senior adviser of the U.S. Securities and Exchange Commission and a partner of Moses & Singer, a New York law firm, said on CoinDesk TV that the actions of several U.S. states against Celsius will eventually promote further regulation and supervision at the federal level.

According to Fisher, the problem of Celsius “goes far beyond the scope of a company” because it points to the entire cryptocurrency industry, “especially cryptocurrency lending”. With the collapse of Celsius, the SEC will focus on market integrity, investor protection and transparency. He added that further regulation would require the cryptocurrency platform to report its assets and liabilities, and to operate and report its risk profile.

 

When will the Regulation be Introduced?

Whether the regulation will be introduced is not the key issue, but when. At the end of last year, US President Joe Biden signed the new tax related cryptocurrency legislation into law in the $1.2 trillion bipartisan infrastructure bill.

Earlier this month, New York Senator Kirsten Gillibrand and Wyoming Senator Cynthia Lummis jointly proposed the responsible financial innovation act (RFI) for the cryptocurrency field, which involves the operation of cryptocurrency and crypto-assets, the jurisdiction of CFTC and SEC, the regulation of stablecoin, bank encryption.

The proposed legislation also proposes to allocate the regulatory power of the cryptocurrency spot market to the Commodity Futures Trading Commission (CFTC), which oversees the commodity market, and create a new Advisory Committee, which will focus on developing guidelines, empowering regulators, and providing rapidly developing technical advice to legislators.

Cynthia Lummis said on twitter that the regulation of the digital asset industry is still a “Wild West”. In the absence of clear digital asset regulatory guidelines, it is challenging to hold institutions accountable, and the Lummis Gillibrand framework will provide clear guidance to stakeholders and regulators.

More regulation may mean more stability in the volatile cryptocurrency market. Tally Greenberg, head of business development at allnodes, a hosting and betting service platform, commented: “regulation will come and must come at some time, which will further stabilize the market. It protects investors, so this is a good thing, not a bad thing.”