Cryptocurrency. The word has pretty much become synonymous with volatility in the last year. But what makes it so attractive is that despite its unpredictable nature it is still one of the most coveted forms of wealth. In the midst of this chaos comes a new addition in the form of cryptocurrency regulation in leading countries.
As markets have wiped out more than $1 trillion in cryptocurrency value since 2021, we are subjected to frequent discussions over cryptocurrency regulation. Imagine an 11-year-old Harry Potter trying to rein in Norberta, the Norwegian Ridgeback Dragon that had large spiny wings and venomous fangs. That is how much fun experts will have to try to regulate crypto.
Why is it difficult to regulate crypto?
In recent times, Bitcoin, Ethereum, and other types of crypto have made room for themselves in the financial system. Rising popularity also means a rise in scams. The thirst to understand crypto has resulted in the generation of a lot of content, including crypto books and online courses. Before making cryptocurrency investments, it is imperative to understand how to buy crypto.
The rapid development of the crypto sector has created difficulties in understanding the ecosystem that makes it tough to streamline cryptocurrency regulation.
The Financial Stability Board (FSB), an international body that monitors the financial system, opines that an in-depth study is required to thoroughly understand the economy that will help regulators frame relevant crypto laws.
Companies issuing or trading crypto assets such as stablecoins – which are usually tied to the dollar or a commodity like gold ensures that their volatility is lesser in comparison to normal cryptocurrencies – face tough transparency requirements. They are obligated to provide detailed information on the risks, costs and charges that consumers face.
The quagmire that is crypto has resulted in some harsh decisions across the globe. While countries like China and Egypt have banned cryptocurrency mining and transactions, the European Union (EU) has taken the first step towards cryptocurrency regulation. As the crypto crisis wiped fortunes off the market, the EU is working on a new set of rules that will protect consumers.
Most governments are working on developing cryptocurrency regulation but lack the in-depth understanding required to frame crypto laws. The rising interest by world governments has also brought in fear of overregulation. In the US, for example, a national level framework, followed by different regulations at the federal level is bound to create friction. On September 16, the US government set out a framework on crypto regulation to make borderless transactions easier while avoiding frauds and scams. Recently, US imposed sanctions on crypto mixing firms that seemed to infringe on privacy laws.
What are the challenges of cryptocurrency?
Despite being touted as digital gold, cryptocurrencies have failed to show that they are inflation-proof. They are also deeply problematic on an environmental and governance level. Cryptocurrencies often consume huge amounts of energy in mining, which has resulted in severe backlash from environmental groups.
The uncertainty that surrounds crypto also poses a problem for institutional investors and requires creative solutions in the form of crypto laws.
On the other hand, crypto enthusiasts hail its low transaction cost and ease of doing business.
Crypto brokers and trading platforms that provide various services also need to figure out how to work around cryptocurrency laws. They must regulate their products accordingly because avoiding crypto regulation must cause serious damage in the long run.
Many analysts are of the opinion that cryptocurrencies represent a separate asset class as some tokens are quite similar to securities. This concern is compounded with the ever-changing nature of blockchain technology. Cryptocurrencies are supported by blockchain technology that is currently revolutionizing banking and finance. In a short period of time, the technology has seeped into everyday life and even resulted in the creation of a new breed of blockchain millionaires. Experts believe keeping an eye on blockchain is crucial to the evolution of crypto and eventually cryptocurrency regulation.
Furthermore, regulators must frame crypto laws in a manner that protects investors and customers while also providing room to grow. Ultimately, regulators must be able to provide enhanced security and reduce uncertainty without messing up the system.
