BIS Proposes Crypto Ban: Is It the Right Approach?

Bank for International Settlements (BIS) showcased its approach to regulating crypto in 2023.
The thesis proposes three models to protect investors.
Complete ban, Isolation & CBDCs discussed.

Multiple billion-dollar collapses in 2022 have dried away common users’ and authorities’ interests. Voices have been raised to ban the whole industry, and joining the team is the Bank for International Settlements (BIS), the “central bank of central banks” released a bulletin showcasing their approach to crypto regulations in 2023.

BIS, in their recent skeptical thesis, ‘Addressing the risk in Crypto: laying out the options,’ suggests that crypto should be banned, isolated, or regulated and that crypto cannot be ignored any longer, especially after FTX-saga.

The authors of the thesis support the opinion that the FTX collapse unraveled the delusional governance concentrated in DeFis. Moreover, the industry is yet to ready itself for being fully self-governed. This segment is found to have many vulnerabilities exposed from the TradeFi sphere, and the specifics of crypto amplify the risks. This is the reason why leaving crypto without proper regulation is harmful.

Many crypto businesses eventually turned out to be Ponzi schemes; there is still a huge knowledge deficit regarding crypto, and its complex nature paves the way for novice investors or users to be duped easily.

BIS proposes three models to protect investors,

First: Outright ban

A total ban on the whole crypto industry will eliminate all the risks, protect investors, and provide stability to traditional financial systems. However, this ban can be circumvented, proving the whole exercise futile. Also, this step would conflict with the principles of society, freedom.

Second: Isolation

Regulators can also isolate the whole crypto from TradeFi, which is the “Contain” strategy. However, BIS experts admit that it is impossible to completely isolate at least in 2023, although this step will not completely protect the investors.

Third: CBDCs

A way where the issuing and circulating authorities lie with the country’s central bank, thus eliminating the causes for deceit.

Central Bank Digital Currencies are issued by the government, allowing them to control and regulate crypto similarly as they do with traditional financial institutions and instruments. “Responsible players” will benefit most from such proper regulations. Although the nature of DeFi makes it harder to point out the responsible persons, any legal entities, or “reference points,” a very daunting task.

In concluding the thesis, BIS also hinted at some alternatives outside Web3 that could be cheaper and faster similar to DeFi protocols. For example, SEPA, the new-gen digital remittance framework in Europe, or FedNow in the US.

Governments across the globe can protect their citizens from exposure to the dark side of the cryptocurrency by launching easy-to-use CBDCs; also, TradeFi could adopt positive elements of DeFi design such as tokenization, composability, and programmability.