While some people might not like the idea of crypto regulation, many experts believe it could benefit crypto investors. In other words, more regulations could lead to less market fluctuation in the cryptocurrency world. “Regulations will come up and they have to come up at some point, which would stabilize the market even further,” says Tally Greenberg, head of business development at Allnodes. “That protects investors, so it’s a good thing. It’s not a bad thing.”
Despite this, many cryptocurrency advocates fiercely resist new legislation. They argue that it will stifle innovation and runs counter to the basic principle of cryptocurrency, which emphasizes decentralization at its heart.
For these crypto enthusiasts against government regulation, digital currencies like Bitcoin are appealing because they aren’t backed by any institution or authority. They see decentralization as a feature, not a bug, so in their view, any new regulation would be disastrous.
According to Aaron Klien, a senior economic study fellow at Brookings Institution who focuses on financial technology and regulation, new cryptocurrency regulation has the potential to protect investors, prevent fraud, and provide guidance for companies so they can innovate. However, he says that forthcoming regulations will need to be executed well in order to be successful.
What is next in crypto regulation?
In 2021, a significant increase in crypto usage among the general public triggered a discussion regarding whether or not the government should have any role in an industry that is largely unregulated.
Although definitive rules are still being developed, a rise in popular acceptance of cryptocurrency has sparked debate. Thousands of tokens and digital currencies have been created, and new businesses and platforms have emerged to assist manage and trading them.
Recent discussions on Capitol Hill point to more regulation in the near future for cryptocurrency. President Biden endorsed new legislation related to taxes on crypto in a $1.2 trillion bipartisan infrastructure bill late last year.
Furthermore, the Federal Reserve is considering issuing its own digital currency. In January, the Fed finally released a long-awaited report on whether it would be beneficial for the government to issue a digital currency.
Stablecoins are a popular topic, and many experts think that they will be the first type of cryptocurrency to get regulated. If new regulation does happen, it could make the crypto market more stable. Even though this would be good news for investors, it’s still risky because cryptocurrencies are very volatile.
Why is crypto regulation a good thing?
Crypto regulations may be beneficial to the industry, at least for typical investors. Greater regulatory clarity, if properly targeted, might assist minimize speculation among cryptocurrencies. Less speculation can lead to greater investor confidence, attracting new long-term investors who have so far stated no because of a highly speculative and unpredictable crypto market.
Even if it doesn’t bring in new people, Klein says that cryptocurrency may change the current behavior. Proponents claim that there are several advantages that cryptocurrency has over standard currency and other assets, but those benefits will only come to fruition with the right regulatory framework in place.
The cryptocurrency market is fraught with uncertainty, as it’s impossible to know how a price-sensitive asset class will react to regulation over the long run. Since it will be determined by the US government’s approach, it’s difficult to predict how the price-sensitive asset class will respond to regulations in the long term. In the short term, any new legislation may cause speculative investor reactions in cryptocurrencies that would depress trading values.
When China banned cryptocurrency transactions in September 2021, the price of bitcoin dropped. Regulation, on the other hand, might have the ability to stabilize the market and minimize risk for cryptocurrency investors over time.
Investors in crypto currently have little to no protection in the market, because there is no regulatory framework in place to guarantee asset security. Some exchanges keep up with changing federal and state regulations.
Many well-known, high-volume U.S.-based exchanges, such as Coinbase and Gemini, are not regulated similarly to public stock exchanges or alternative trading systems. That may be problematic, according to Timothy Massad, a former chairman of the Commodity Futures Trading Commission and a senior fellow at Harvard’s Kennedy School of Government.
The majority of cryptocurrency trading today doesn’t follow any federal guidelines, which is a conspicuous flaw. This lack of regulation means that investors are much more vulnerable to exploitation on these large exchanges than they would be in our securities or futures markets.
Regulation is required to create a safer market. Although crypto will continue to be an uncertain investment, investor protection may reduce the risk of market manipulation. Safer markets can lead to more investor confidence, which means that in the long run, crypto values will increase.
Safer Crypto Ecosystem
The cryptocurrency industry has been dubbed the “Wild West” by SEC chair Gary Gensler due to a lack of regulatory oversight. The absence of legislation and regulations in this growing area has allowed for widespread fraud, hoaxes, door-to-door salespeople, and market manipulation.
The lack of regulation in the cryptocurrency market allows for fraud and manipulation. Conflicts of interest are not regulated. My point is that we don’t have the same sorts of standards as other markets. Today, it means buyer beware, to say nothing else.
According to a report by blockchain data firm Chainalysis, crypto crime has increased tremendously in the last two years. In 2020, scammers took $14 billion worth of cryptocurrency- more than double what was taken the year before. With over 17,000 altcoins on the market – which are typically even more volatile and speculative than Bitcoin – there is a higher risk for scams and frauds.
Even the most knowledgable and enthusiastic cryptocurrency experts acknowledge that there are several unique and developing dangers in the crypto world right now. There are, however, various strategies for safeguarding your digital assets.
For one thing, be on the lookout for any typical warning signals that mimic traditional money-wire frauds and credit card fraud, such as misspellings in emails or social media postings, or any promises of getting you rich real quick.
There are several ways you can protect your digital wallets from potential hackers, such as using a hot or cold wallet for additional safety or keeping your cryptocurrency in an exchange with strong security. Perhaps the most important tip is to keep track of your wallet key and never reveal it to anyone; if you lose it or have it stolen, you could say goodbye to your crypto permanently.
The benefits of cryptocurrency regulation and collaboration are clear: they support economic growth and promote coordinated global standards. As more agreements are reached, it becomes easier to predict the macroeconomic effects of crypto assets. Policymakers should keep these impacts in mind when creating future regulations.