What Will It Take to Regulate Crypto Exchanges?

Ask any regulation expert and they will tell you that, absent Goldilocks conditions, neutrality is neither the natural state of markets, nor the natural instinct of regulators.

The most decisive factor to regulate is sustained monopoly power or dominance in the market.

If Binance were a monopoly exchange, then delisting a cryptocurrency would result in driving it out of the market.

Regardless of power, would decisions such as Binance's delisting of Bitcoin SV undermine important public interest goals such as market stability and efficiency, consumer and investor protection, and capital formation?

For one thing, regulators still grapple with the question of whether crypto assets even form part of financial markets.

The key lies less in the fate of Bitcoin SV specifically, and more in the effect of the practice of delisting in the overall stability of the market.

The main idea behind non-regulated competitive markets is that actors behave well because market forces discipline them.

Think about how much more difficult it would be for an exchange to delist Bitcoin with its much higher market capitalization, velocity and liquidity compared to Bitcoin SV. Evidently, Bitcoin is more valuable to exchanges and therefore the constraints around how exchanges treat it are tighter.

Nascent markets are also more likely to be regulated in the name of the public interest both because people are generally more vulnerable in new market contexts, and because industry interests have not developed lobbying capacity yet.

A few industry associations are already present in blockchain markets but none seems to represent the collective interests of exchanges.