The Importance of Trading With a Regulated Exchange


The inevitable drive toward regulation for cryptocurrency exchanges should be something that all cryptocurrency participants and enthusiasts must factor into their interaction with digital asset exchanges from the outset.

Equally, it is a measure of responsibility and future-proofing as the cryptocurrency and decentralized finance (DeFi) world evolves that cryptocurrency exchanges should establish themselves from the outset as regulated exchanges.

Today, a milestone case in point has come about, demonstrating the absolute importance for cryptocurrency exchanges to be regulated, and for their users to ensure they work with regulated exchanges.

Just one hour ago, at 7.00pm UK time on August 25, 2021, the British financial services regulator, the Financial Conduct Authority (FCA) which is one of the most highly respected regulatory authorities in the world, declared that it ‘is not capable of regulating Binance’.

Binance came onto the scene as an unregulated exchange and engaged in ‘regulatory arbitrage’, making quick use of bypassing financial regulations to get to the size it had done, instead of establishing itself with the right regulatory licenses in place from the beginning, and the result is that it was banned from operating in many nations, the FCA being the first regulator to ban it a few weeks ago.

Now, the FCA has said that it is “not capable” of properly supervising Binance despite the “significant risk” posed by the cryptocurrency exchange’s products, which allow consumers to take supercharged bets.

This highlights the unsustainable nature of firms that swoop the worldwide market with non-compliant products in the hope that regulators will not require them to adhere to rules.

The admission by the FCA underscores the scale of the challenge facing authorities in tackling potential risks to consumers buying frequently unregulated products through nimble cryptocurrency businesses, which can often circumvent national bans by giving users access to facilities based in unlicensed offshore jurisdictions.

Binance has indicated to the FCA that its UK operations are separate from other parts of the global group, however internal Binance documents seen by the Financial Times say that “Binance is operating an FCA regulated business” and notes that “consumers will be subject to the FCA regulatory guidelines”.

By contrast, cryptocurrency exchanges that established their business with regulation as one of the key tenets of their founding, and which did so in very well respected regions of the world which have highly advanced digital societies such as Estonia are best positioned to serve their clients and to adapt and evolve to embrace and operate within the multi-faceted decentralized world of tomorrow’s financial structure.

CoinMetro began its life as a regulated exchange in 2017, with an Estonian cryptocurrency exchange license, holds an EMI license for its payment channel, and is going to become a multi-lateral trading facility (MTF) next year, making it a fully licensed digital bank and cryptocurrency exchange all in one.

The cryptocurrency trading world also sees the value of full scale regulation. The rise in value of Bitcoin and Ethereum after the US government’s recent meetings and rulings on tax treatment and regulation for cryptocurrencies was testimony to that.

This is the only way forward, and is vital at a time during which many new blockchain protocols are being launched and a whole range of use cases for digital currency are now in the fray including smart contracts and corporate settlements as well as trading the markets.

The curtailing of Binance’s operations was a sharp lesson to many, however the FCA’s interesting observation that due to the company having operated without a compliant product range, it is now an issue to resolve is an important facet to take on board.

At CoinMetro, we are dedicated to adhering to financial regulations and are staunch advocates of the development and expansion of a fully regulated environment for digital currency and its infrastructure.

It’s the only way to keep moving forward and pushing the boundaries to develop the financial world of tomorrow.