A well-regulated framework is necessary for creating a crypto market that can last
The regulatory environment surrounding cryptocurrencies is constantly evolving, albeit more slowly than the cryptocurrency sector itself. Institutions and the general public agree that operating with cryptocurrencies needs a rigorous and transparent regulatory framework. The numerous scams, phishing attempts, and hacks the industry sees have no legal repercussions. This highlights how brazen the fraudsters are and presents a murky image of the bitcoin market.
It’s time to rouse sleeping policymakers.
The rise of the NFT market in 2021 astounded government and international organizations. A clear legal framework for NFTs is necessary to sustain the market’s long-term growth, given that Ethereum has seen NFT sales of over $9 billion. Only the last three months of 2021 witnessed $1.5 million in unlawful activity in the NFT market. Even if the quantity of money laundering that takes place abroad is far greater than what this data indicates, this undesirable trend may still exist in 2022.
NFTs are still not categorized; therefore, the United States and the United Kingdom could not develop a clear set of guidelines. The conduct of NFT issuers and markets may be subject to Know Your Customer and anti-money laundering regulations. The long-awaited study by the Fed, which was released in January, looked at the benefits and drawbacks of a cryptocurrency that was subject to governmental regulation. Finally, the report opted to delay the choice to move forward and gave the public and other interested parties until May 20 to comment in order to move forward.
Similar to how Stablecoins awoke politicians from their slumber. Also growing five times, stablecoin sales reached $164 billion by the end of 2021 from $26 billion at the beginning of the year. 2022 saw further growth, with the first six weeks of the year seeing a 6.8 per cent increase. In its report, which was delivered in 2020 and 2021, the Financial Stability Board—a worldwide organization that keeps track of and organizes the efforts of financial regulators around the world—called for action on Stablecoin. The board has designated July 2022 as a placeholder date for creating regulatory frameworks in national jurisdictions.
The regulation of Stablecoin was made more difficult by the introduction of decentralized, U.S. dollar-pegged stablecoins. Stablecoin, however, is predicted to be the first cryptocurrency to be regulated, according to experts.
Why is cryptocurrency regulated?
The market will be more stable if cryptocurrencies are subject to more regulation. However, a large portion of bitcoin supporters are vehemently opposed to controls in the market. They think it will stifle innovation and go against the fundamental principles of cryptocurrencies, which include decentralization. Stakeholders and investors have opposing viewpoints. Let’s look at experts’ opinions on the regulatory environment around cryptocurrencies and why they believe it benefits investors.
- More stability in the market:
For investors who are worried about daily market fluctuations, a regulatory framework will offer peace to the market and foster a positive work environment in the sector. The government’s robust regulatory framework might assist in curtailing speculation in cryptocurrency assets. Less speculative activity will increase investor confidence, which might attract more long-term investors who have previously shunned a highly speculative, volatile crypto market. Even if it doesn’t attract more people, it may at least alter how they now act toward cryptocurrencies.
If we state it straight, regulation of the cryptocurrency market may curtail the activities of individuals looking to make quick money by guessing how much the next coin will be worth. Investor protection and raising their confidence: Due to the lack of a legislative framework that can provide asset protection, cryptocurrency investors now have no security for their investments. Leading exchanges like Coinbase and Gemini are among those that operate in line with newly established federal and state regulations in the United States. Their principle, however, differs from that of the stock market and other trading platforms.
Since any federal agency’s cryptocurrency market is unregulated, investors’ protection is less intense there. To make the cryptocurrency market safer for investors, regulation is required. Investor confidence would rise further on a safer market, fueling the expansion of the cryptocurrency sector.
The absence of rules and regulations encourages wrongdoers’ arrogance, and as a result, rampant fraud, scams, rug pulls, and market manipulation plague the whole business. The previous two years have seen a sharp increase in cryptocurrency crime. Research by blockchain data company Chainalysis claims that fraudsters stole $14 billion in cryptocurrency last year, down from $7.8 billion at the start of 2020. Despite the possibility that a legal framework may calm the cryptocurrency market, it remains a hazardous and speculative investment.
Government efforts to provide a framework for regulations
The Financial Stability Board’s research examines the trends that will occur in 2022 as well. The study provided information on how central bank digital currencies (CBDCs) developed in more than 91 nations worldwide. This demonstrates that the federal government is aware of the possibilities of virtual currencies. The government is making further efforts, and policymakers must work hard to provide a comprehensive regulatory framework that can support innovations and enable a broader audience to accept digital assets.
CBDCs might improve tax compliance and more accurately track financial activities. However, it can seriously impede the adoption of cryptocurrencies. This might even displace certain decentralized digital currencies since CBDCs profit from stability and because the company thinks that governmental organizations inspire many people.
Cryptocurrency requires a well-regulated structure that can ensure that innovations are encouraged and that growth is not stifled. The financial system might be renewed and could move toward a more egalitarian future thanks to cryptocurrency.
“The material in this article is provided solely for informative reasons. It doesn’t offer any investment advice and isn’t a replacement for private investments.”