Spread the love

Post Views: 11

Since the launch of Bitcoin in early 2009, individual and institutional investors have become increasingly interested in the cryptocurrency trend. It has expanded to encompass various digital assets built on blockchain technology and more than 10,000 cryptocurrencies. Governments and regulators are becoming more concerned about intervening to secure investor protection and the ongoing stability of the financial system as this wave threatens to eclipse traditional finance.

The blockchain and crypto-asset industry will soon be subject to higher levels of regulation and enforcement; the goal is to strike the correct balance between investor protection and promoting innovation.

But why are so many investors calling for regulation? What will it achieve?

Photo by Sora Shimazaki on Pexels.

Regulation’s Potential to Change the Market

Regulation of cryptocurrencies refers to the employment of laws that restrict how digital assets are stored, bought, and sold. At the moment, there is no global legislative framework that regulates cryptocurrencies. For instance, Bitcoin is known as an authenticated form of payment in Japan, while cryptocurrencies are illegal in China and have no official status in several other nations.

Because they are decentralised and anonymous, cryptocurrencies raise serious issues, which prompts governments to consider crypto rules to shield their citizens from the following effects:

Competition: The security and timely delivery of cryptocurrency may be threatened by miner collusion. Owners of large mining pools benefit from a speed advantage and can reap monopoly revenues from mining.
Hacking: Since cryptocurrencies cannot be used everywhere, communication between the buyer and seller is necessary when exchanging them for products, services, or fiat money. It is offered by exchanges that serve as middlemen. They make it simpler to discover counterparties, but they also put bitcoin owners at greater risk of theft and hacking because they are easier to target.
Criminal activity and money laundering: Since there are no universally accepted international laws, jurisdictions are free to move around in quest of the most favourable legal frameworks.

Although new rules are meant to safeguard people, some investors question why cryptocurrencies shouldn’t be regulated for the following reasons:

The loss of anonymity means that marketers, third parties, and authorities will all be aware of user transactions.
Creating new laws requires undergoing verification processes that can be time-consuming for individuals and legal institutions.
Regulation brings with it the cost of paying taxes. For instance, the tax on mining as a commercial activity could be more significant than 40–50%. Additionally, because income tax will be levied, those who earn money through cryptocurrency will see a reduction in income.

In a crypto market known for its volatility, more regulation may lead to more stability. Tally Greenberg, Head of Business Development at Allnodes, a platform that offers hosting, monitoring, and staking services, asserts that regulations “will come up, and they need to come up at some point, which will stabilise the market even further” and safeguard investors, which is good.

New regulations may protect long-term investors, stop fraud in the crypto ecosystem, and offer clear guidelines so businesses can innovate in the crypto economy.

Why Regulation is Good for Investors

Due to a lack of regulations, there is much room for market manipulation, fraud, and other dishonest practices. Over the past two years, cryptocurrency crime has significantly increased. According to a report by blockchain data company BitAi Method, scammers stole $14 billion worth of cryptocurrency last year, setting a record compared to the $7.8 billion they stole in 2020.

Additionally, over 17,000 altcoins tend to be even more erratic and speculative than Bitcoin and have a more considerable risk of cryptocurrency fraud and scams. Including the most knowledgeable and passionate cryptocurrency experts know that there are now a lot of new and developing threats in the world of cryptocurrencies.

The sector may benefit from regulating cryptocurrencies as far as regular investors are concerned. If properly targeted, more regulatory advice could reduce crypto asset speculation.

Increased investor confidence brought on by less speculative activity may entice additional long-term investors who have previously shunned the highly volatile and speculative crypto sector. Like individual stocks, investing in cryptocurrencies is likely risky, but investor safeguards may lessen the market’s susceptibility to outside manipulation. Greater investor confidence can result from safer markets, and more excellent value over time is frequently the result.

Regulating cryptocurrency would provide additional support to the volatile market. Many analysts predict that soon additional nations will regulate cryptocurrencies, and those nations that have already done so will tighten their restrictions even further. Overall, regulation will reduce risks for token holders and draw additional investors to the business if everything is properly controlled. Otherwise, it may result in issues with anonymity and excessive taxes. Much speculation surrounding global regulation in 2023 will only have to be seen if it does unfold.