Cryptocurrency has become the buzzword of 2021 as its widespread adoption has its moment in the sun. With nearly $2 trillion locked in over 6,000 currencies, they are here to stay. But the decentralised nature of cryptocurrencies leaves the market susceptible to manipulation and volatility.
Take, for example, the announcement of Litecoin’s, a popular cryptocurrency considered to be a fork of Bitcoin, partnership with Walmart on September 13, 2021, on GlobeNewswire. It was a momentous announcement as Walmart is one of the biggest retailers in the world. Major business publications like CNBC and Reuters featured it on their websites lending it credence. Litecoin’s Twitter handle tweeted the information eagerly affirming it as legitimate.
Its market price jumped by 20 percent following the news. Many thought that a cryptocurrency had finally been acknowledged by a major retailer and other businesses would soon follow suit. It was, as the crypto community says, the first stop on its journey to the moon.
What happened when the partnership was revealed to be a hoax?
The enthusiasm waned as quickly as the price of Litecoin after the announcement turned out to be a hoax. Walmart rushed to clear up the confusion by stating unequivocally that it was the subject of a fake news release.
“… that falsely stated Walmart announced a partnership with Litecoin. Walmart had no knowledge of the press release issued by GlobeNewswire, and it is incorrect. Walmart has no relationship with Litecoin,” read the official statement.
The article was taken down following Walmart’s comments, and most publications were left red-faced. GlobeNewswire issued a notice across its service confirming that journalists and other readers should disregard the news release. The Litecoin Foundation said it “screwed up” in carrying out its due diligence before tweeting out the information from its handle.
This incident is certainly not unique to the crypto ecosystem as is evident from various manipulative schemes in the equity market. It is also not the first time crypto markets have been rocked by a hoax as it is notorious for various pump and dump schemes. It must be noted that stock market manipulation invites consequences in terms of fines and prison time for culprits. This is where the crypto market lags as it is yet to find a way to assure skeptics and investors alike that it can punish opportunists and manipulators.
The lack of a mechanism to deal with such tactics is hurting investor sentiment around crypto. It faces several regulatory battles from governments all over the world. Some countries have banned it altogether including China which raises more questions about the future of cryptocurrencies.
Is it time to embrace regulations?
The unprecedented interest in the crypto market has made it impossible to avoid the spectre of regulations. Moreover, a regulatory framework with comprehensive penalties is the need of the hour to deter such incidents in the future. In the aftermath, it is not a matter of if, it is a matter of when.
If a Fortune 500 company would have tweeted fake news from its handle which sent its stock price soaring on the bourses, it would have had to pay millions of dollars in fines and penalties whereas Litecoin got away with a mere apology and a promise to be better in the future.
In 2018, Elon Musk had a run-in with the Securities and Exchange Commission who found that Musk had misled investors after he claimed over Twitter that he had secured funding to take Tesla private at $420 a share. The SEC sued him for securities fraud as the deal was far from realisation. Musk quickly settled with the SEC, and under the terms of the agreement, it was decided that Tesla will approve tweets from Musk about the company’s finances or other information.
Crypto markets have been susceptible to price fluctuations from many corners including Elon Musk. Musk is an eccentric billionaire who doubles up as a sh*tposter on social media. He has influenced the price of Dogecoin, a meme cryptocurrency, on several occasions but escaped any reprisal due to want of a commission to rein him in and regulate his Twitter activity.
The Walmart-Litecoin fiasco also brings the murky web of news wire websites into the spotlight. The sites operate with little oversight in an age of misinformation never seen before. It is a ticking time bomb waiting to explode. They have to do more to bring fact-checking to the forefront of their business.
Stumbling blocks faced by regulators
The problem is that most governments are walking on thin ice when it comes to crypto regulation. The complex nature of cryptocurrencies renders the process cumbersome and tedious as the currencies span the globe. Many are wary of their money-laundering implications and are hoping that the enthusiasm will die down on its own. India has been dragging its feet on a crypto bill for years leading to a topsy-turvy policy around crypto.
In the absence of a policy framework, such instances are only going to become frequent as more people flock to crypto exchanges to avoid missing out on their astronomical gains. This is not to say that countries have been unable to come up with policies around crypto. United States, Japan, and Singapore have all been able to address some of the pressing questions concerning the ecosystem. It is not to say that they have perfected the framework but they are a good reference point.
The crypto ecosystem in its current form is not going to be able to achieve what the community has envisioned, it has to evolve to account for the problems which crop up. The community has to come up with a solution in the form of a self-regulatory body that fosters an ecosystem where misdeeds attract consequences.
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