Regulation: Good or Bad for the Crypto Industry
The cryptocurrency industry regulation debate has been the elephant in the room in the recent past. While some industry players believe regulation is the key that will open the door for mainstream adoption, other crypto enthusiasts warn a legal framework will stifle innovation and ruin digital coins.
According to Satoshi Nakamoto’s Bitcoin whitepaper, the main objective of cryptocurrencies (Bitcoin) was to create a financial system that was free of third party interference. That said, crypto regulation defeats the whole purpose of why cryptocurrencies were created in the first place. Or does it?
So, is regulation good or bad for the crypto industry? In this article, we take a look at the pros and cons of crypto regulations. Let’s delve in and explore:
Advantages of Crypto Regulation
• Increased Safety
Over the years, the crypto market has made overnight millionaires and overnight paupers. It's not just the highly volatile nature of the digital coins that have changed lives but also the infestation of scammers to the market.
The unregulated nature of the market has attracted so many scammers who have launched and keep launching all sorts of scams to unsuspecting investors.
According to CypherTrace, crypto scams surpassed $ 1.2 billion in the first quarter of 2019. By the end of the same year, criminals and fraudsters had pocketed approximately $4.26 billion in aggregate. Apparently, insider thefts were by far the largest offenders.
The proponents of crypto regulation believe it enhances the safety of the market, ridding it of scammers and other fraudsters. With regulation, every new coin coming to the market will have to meet certain criteria first. For instance, the Securities and Exchange Commission (SEC) is gradually enacting a more stringent framework.
• The Attraction of Professional Investors
Many big corporations and investors are sceptical of the crypto market for several valid reasons. One of the reasons is high volatility and another is lack of safety.
The crypto market currently lacks any safety net that can assure investors recourse in case of any issue. As an investor, once you lose money, it's gone. There is no way of getting it back and no legal avenues to seek.
The proponents of crypto regulation believe that wary investors would be won over. More cash would be poured into the market, increasing innovation and promoting widespread use of digital coins.
Regulation means a clear operational structure. It means recourse in case of issues. It means high liquidity levels, making the market more efficient for traders. High volatility will reduce, attracting even more investors.
• Moral Legitimacy
It is no secret that digital coins like Bitcoin have been associated with criminal activities for the longest time. The digital coins have been thought to promote buying and selling of drugs on the dark web. It is for such reasons that the coins have received a lot of resistance for the longest time.
It was not until 2017 that cryptocurrencies like Bitcoin gained massive recognition and respect, but many countries like Pakistan, Afghanistan, Bolivia, and Qatar have still banned the coins.
The proponents of crypto regulation believe regulation can enhance the moral legitimacy of the coins. They believe a global regulatory framework of the crypto market can even eliminate the banning of this game-changing innovation.
For example, in 2017 the Japanese government decided to embrace cryptocurrencies under the remit of a regulatory framework, just like other financial services. Consequently, Japan is now responsible for the largest amount of Bitcoin trading globally.
Disadvantages of Crypto Regulation
• Capital Flight from the Crypto Market
The crypto market is enticing to many people because of what it represents; power back to the people. The decentralised nature of this technology means there is no reliance on a third party, and there is complete transparency and anonymity.
By introducing regulation to this game-changing market, many opponents of crypto regulation believe those attracted to the market because of what it represents will leave. Many investors will move back to traditional investment. Without investors, the market will collapse.
• Exclusion of Valuable Projects
With regulation comes a regulatory process that is time-consuming and sometimes pretty expensive. The crypto market is a haven for many potentially prospective projects because of how accommodating it is. ICOs and cryptocurrencies grew quickly in popularity because of simplicity.
The crypto market allows investors to invest in a project even in its early stages. Companies and startups can raise money from investors without having to spend time and money on regulatory processes.
What crypto regulation brings to the table are potential entry barriers for good companies with great ideas. With regulatory systems in place, great ideas might never see the light of day. Locking out such technological advancements deters progress.
So, What’s the Verdict on Cryptocurrency Industry Regulation?
It is evident that both proponents and opponents of crypto regulations have valid reasons to accept and deny regulation. However, even as the debate continues, countries are already creating laws to govern cryptocurrencies.
For instance, KYC and AML regulations are now the order of the day, especially in the U.S and the E.U regions. The trend will continue and it’s likely to absorb most countries. This is expected to lead to more security, institutional investors, and mainstream adoption. On the flip side, it can also harm the anonymous nature of the crypto market.
Nonetheless, the crypto community should not fear regulation. As long as the regulatory authorities can strike a fine balance between investor protection and innovative freedom, crypto regulations will open doors to much a wider base.
What do you think? Let us know in the comments below!
About the author:
Jay Jackson is a blockchain enthusiast and a freelance writer at topcryptowriter.com. He works closely with brands (people, businesses and startups) in the crypto sphere. He currently writes Blog posts, Guides, Press releases, ICO reviews, eBooks & Whitepapers. You can find him on LinkedIn.
The above references an opinion and is for informational purposes only. Do not take this as personalised financial advice or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.
Last updated: 30/01/2020