As crypto-assets continue to revolve around a lot of regulatory talks worldwide, their popularity seems to grow simultaneously. Most cryptocurrencies’ prices have risen over the past year to all-time highs. For that matter, financial watchdogs are looking into cryptos and bringing up bills in a bid to increase regulation.
Global authorities have encountered several challenges regulating crypto-assets. Although still in its early phases, a proper approach will largely depend on the development of crypto assets. Some regulation measures have been enacted, but we really can’t say all have been implemented successfully. In this article, we shall focus on why financial regulators should ease clamping down crypto assets. FIrst, let’s see why cryptocurrency regulation is essential:
Reasons for Regulating Crypto Assets
Regulators worldwide are more convinced that cryptocurrencies continue to play an increasingly typical role for investors. We are thus far past the level at which countries may prohibit cryptocurrency or adopt an attitude of waiting and watching.
Central banks and authorities consider bitcoin as a very volatile and speculative asset and not a currency. The volatility of cryptocurrencies mostly depends on small market volumes and concentrated stocks, presumably in the hands of a few early adopters called ‘whales.’ Retail investors must find a way to shield themselves against excessive volatility.
A further justification for additional regulation is that cryptocurrencies have become part of the current financial infrastructure and the existing financial system at large.
Why Regulators Should Ease Clamping Down on Crypto Assets
Despite the advantages of cryptocurrency regulation, financial regulators seem too worried for the financial world’s good. Here’s why they should ease digital currencies in smoothly:
Cryptocurrencies Continue Going Mainstream
Cryptocurrencies have grown in popularity from late 2020 to early 2021, and with the increased price, more people have become interested in space.
Institutions, on the other hand, saw a great opportunity in cryptocurrencies and hence ventured into them. Companies like Square, Cashapp, and Paypal integrated selected cryptosystems that enable these non-traditional assets to reach millions of potential investors previously unwilling to face the required constraints.
With more institutions and investors onboard, crypto startups are making day-to-day transactions easier and possible, bringing about mainstream adoption. Cryptocurrencies going mainstream are still at their initial stages and require more time to grow and venture into more daily use cases and grow their adoption. When financial regulators go hard on crypto at this time, then crypto startups will be spooked, similar to new adopters, and cryptocurrencies may never actually go mainstream.
Undermining Innovation
With new applications coming up every day, cryptocurrencies continuously change. Blockchain technology will undoubtedly impact all aspects of companies in the future, but this is a slow process that takes time and patience.
Although some blockchain firms will fail, folks will gain more experience and information about using this technology. Blockchain encourages people to gain new skills, as established businesses should consider involving their clients with the technology.
But if regulatory bodies keep regulating it, companies interested in Blockchain technology become more and more afraid of scrutiny. Therefore, we might not see blockchain evolve to bring about more use cases potentially.
Limited Knowledge in Crypto Assets
There are at minimum components of the existing financial system and its rules that do not function for people worldwide, even in the United States. Such a circumstance calls for self-reflection and studying what has been wrong – and how to create new resources and abilities. This approach is crucial to avoid plunging into the difficulties of the past that could be re-created or aggravated.
It is vital for cryptocurrency, as the typical individual generally misunderstands the technology. It’s nobody’s fault since the space is relatively young and fast-growing. It’s a full-time job to know about everything. Crypto is one of many new areas for legislators and regulators, making it challenging to grasp the complexities of its technologies and services entirely.
Therefore, it is essential to consider these questions and ensure that time is enough for these incredibly complicated and innovative problems to be resolved quickly. Take the growing area of decentralized finance, for example, which provides a range of financial services alongside blockchain technology.
Control Over Cryptocurrency Prices
Although cryptocurrency enthusiasts considers it as money, the Internal Review Service deems it as a financial asset or property.
IRS suggests if you achieve capital gains in sales or trade, the government would like to cut profit. On May 20, the US Treasury Department proposed all taxpayers should disclose transactions above $10,000 in bitcoin to the IRS. Whether taxed as capital gains or ordinary income depends on how long the taxpayer has held the cryptocurrency.
There are several ways in which government control might influence Bitcoin pricing. First, governments can affect asset prices, such as fiat currencies, by purchasing and selling actions on international markets.
Second, it may degrade excessive enthusiasm for an asset class by burdening it with laws that increase business expenses. An example of this is the Bitcoin regulation in numerous US states.
Finally, governments can also make the asset scarce by establishing controls. One example is the case of gold, which has import constraints in many countries.
Conclusion
Rushed regulation will not benefit any of the players in the crypto space, the regulators included. The regulators should take their time to understand what cryptocurrencies are about and reach a common understanding that favors all the players.
In general, balanced and coordinated regulations will help safeguard investors, promote increased competition and fight crypto-monetary crime.
Several governments have launched cryptocurrencies regulations. Concerning recent regulatory attempts, you can conclude that each strategy varies amongst governments. The proposals of the European Commission are the most effective way to meet the balancing requirements and achieve a comprehensive and uniform EU-country strategy. Although new regulations have been introduced in the UK, they are still mainly behind all the latest developments happening in the crypto space.
