As we've established before, the first step in regulating cryptocurrency is understanding how it can be defined. Historically, we’ve seen that cryptocurrencies are mostly speculative assets, sometimes intended to be currencies. That is, the creators of the currencies issue the tokens or coins out with the intention of it being used as a medium of exchange. However, this new invention also has a use case as a speculative asset. This distinction is critical because it informs who is responsible for controlling it.
In many cases, crypto is both a currency and a regulation. If we accept crypto as both a currency and a security, then it would make sense that both the central bank and the securities and exchange regulator would care about how the space develops.
Given how decentralised cryptocurrency is, one way regulators might want to ensure investor protection is by regulating crypto exchanges.
Many exchanges do more than create a platform for investors to trade in crypto assets, they also act as custodians, brokers and issue new crypto assets; functions which are similar to investments in the traditional finance sector.
Therefore, regulators might attempt to promote investor protection by first either using existing regulation for traditional finance stakeholders (with a few changes to accommodate crypto and blockchain technology).
But even after defining what cryptocurrency is, we need to think of what aspect of cryptocurrency should be regulated. Should we regulate the platforms people trade on, or how people use it as a medium of exchange?