By
Tolu Ajiboye
April 23rd, 2024
Chamath Palihapitiya spoke on Bitcoin and crypto issues, including inadequate regulation, off-chain transactions and high-risk staking.
According to notable venture capitalist and early Bitcoin investor Chamath Palihapitiya, the leading crypto needs to be regulated like a security. The Sri-Lankan-born Canadian-American billionaire businessman made this assertion on a recent podcast episode he co-hosts with a few other venture capitalists. They include David Sacks, David Friedberg, as well as Jason Calacanis. Speaking on the lack of regulatory oversight over Bitcoin and the larger crypto market, Chamath Palihapitiya noted:
“This is a completely unregulated market, right? There are no market makers that actually have reporting requirements to any regulatory authority. There aren’t any clearinghouses. There isn’t a way for us to understand systemic risk as it builds in the crypto market.”
Emphasizing the absence of controlled measures for holding the crypto industry accountable and protecting investors, Palihapitiya continued:
“The underlying principle around that is a common set of parameters, a clearinghouse, the ability to monitor risk – none of those things exist here. And I think that’s really what folks have to solve for now.”
In Palihapitiya’s opinion, the sheer size of the crypto market demands that authorities should regulate it as a security even if it is not one. This is because BTC and the altcoins constantly pose substantial systemic risks that only proper regulation can address.
Chamath Palihapitiya Addresses Other Bitcoin-centric Issues
Outlining the biggest problems in the crypto industry and preferring solutions, Palihapitiya also mentioned crypto off-chain activity. In the avowed crypto bull’s opinion, bad actors could deploy off-chain activity to pump the price of a token they created. This could, in turn, hurt oblivious retail investors.
Off-chain activity is transferring crypto from one account to another away from the blockchain. The reasons why some people may choose to engage in off-chain activities could be legitimate or of a questionable nature.
Still on the subject of endemic issues plaguing the crypto industry, Palihapitiya also brought up high-yield staking. The SPAC sponsor and Social Capital CEO criticized the recent popularity of high-yield staking, terming it an unnecessary risk. High-yield staking involves locking up crypto holdings in order to earn rewards and interest. Palihapitiya disapproves of this practice.
According to him, exchanges promoting this practice are also more susceptible to questionable off-chain transactions to cover promised investor gains. This could put the overall operational foundation of these exchanges and platforms in danger and incapacitate them. A prime example of such is Terra Luna whose crash severely impacted the crypto market. Before the crash, the creators of the ill-fated crypto had offered a 20% annual percentage yield in exchange for investor staking.
Furthermore, an even more recent example of ill-fated staking can be found in the Celsius situation. The crypto loan company once offered 8.53% returns for staking with them, but as of now, is struggling with a financial crisis. For several weeks now, Celsius has refused to allow investors to withdraw their funds amid a global crypto meltdown. The company also recently filed for bankruptcy.