Cryptocurrency Regulation: Advantages and Disadvantages
Talk about cryptocurrency regulation has been rampant for some time now, and is eliciting mixed reactions from investors. There are people who believe that regulation is a good thing, while others believe self-regulation is the ticket to helping cryptocurrencies make the world a better place. Some crypto enthusiasts are afraid regulation will kill the market. Going by recent market reactions to any news of regulations, it is clear that the crypto market is hesitant, to say the least, when it comes to regulation… That’s part of the reason why cryptos have been falling for the last 6 weeks, following consistent news of regulation in Far Eastern countries, mainly China and South Korea. But is regulation that bad for the crypto market? Well, it depends on your perspective on the long-term direction of the market. To give you perspective on this issue, here are the possible pros and cons of regulating the crypto market.
Advantages of Regulating the Crypto Markets
1. Reducing Scams
The crypto market is making lots of people wealthy, no doubt about that. Unfortunately, people are losing millions too, through scam coins and ICOs. Due to the unregulated nature of this market, scammers have invaded it by launching all sorts of scam coins. These coins are pumped into the market, and once investors put in money, the project owners disappear, taking that money along with them. Investors are left holding worthless tokens that are later delisted by exchanges. That is, if they ever make it onto an exchange in the first plact.
On this front, cryptocurrency regulation worldwide could do a great favor to the market. Regulations would help ensure that every new coin coming to the market meets certain criteria. This way, people putting money into cryptos feel safer with their investments.
2. Attracting Institutional Money Into the Markets
Assume just for a minute that you are a mutual fund manager controlling billions of dollars in investor-funds, most of it pension money. Would you put it in cryptos? There is a good chance that your answer is NO! The same answer will come up to the question “Is bitcoin legal or not?” That’s because this is an unregulated market where all your money can vanish in an instant with no recourse, maybe even earning yourself a few hundred years in jail for negligence when handling investor capital.
However, if the market were regulated with clear operational structures in place, institutional investors would pour billions of dollars into cryptos. Liquidity levels would increase making the market more efficient for traders. Huge price differentials between exchanges that exist today would cease to exist.
3. Giving the Crypto Market Moral Legitimacy
Let’s face it, for quite some time, a lot of representatives of the modern cryptocommunity are sure that bitcoin is the coin for criminals. It was thought to be a currency for buying drugs, sex trafficking and other crimes that take place on the dark web. This image only started fading away after the price of bitcoin shot up in 2017. Unfortunately, this kind of thinking still takes place. That’s why countries keep threatening to take stern action against cryptos.
For example, crypto regulation in India has recently reached its apogee. China, too, seems to be on an aggressive war against them in the belief that they are a threat to the financial system. This negative tag can easily disappear with bitcoin regulation. If there were a global regulatory framework guiding this market, no country would find the need to ban them. In fact, they would be encouraged as an alternative investment.
Disadvantages of Cryptocurrency Regulation
1. It Poses the Risk of Capital Flight From Cryptos
Of course, there are some cryptocurrency regulation problems. To understand this, you need to ask yourself, why are cryptos so popular in the first place? It’s simple! They are popular because of the desire for people to take charge of their lives, away from centralized government systems. Therefore, by introducing government regulations, it would be like bringing in government – the same entity that crypto heads don’t want snooping over their money, into the system. The result would be a flight to traditional investments, since they are more stable. There would be no point in placing money in a risky asset, whose ideological objective is no longer clear.
Such capital flight is not imagination. Just look at how the market has been behaving since the Far East countries started talking regulation. The market tanked, with bitcoin falling by over 50%. Imagine what would happen if regulations were to go global? The future of cryptocurrency would drop so drastically that it would be a shadow of its former self.
It is quite clear that the advantages of regulating the crypto market clearly outweigh the cons. In fact, as things stand, this is a market screaming for regulation. It’s only through cryptocurrency regulation that you will be able to leave your money in an exchange without fear. Cryptocurrency regulation challenges are not that big. That’s because the people putting money into cryptos right now don’t have much attachment to the whole ideology of cryptos and power to the people. They are just looking to invest and grow their wealth, and regulation to them is a form of capital protection.