Rudy Fares
While the growth of the cryptocurrency market continues to be astonishing, it is not without its problems. Like every invention or investment that brings delight, cryptocurrency trading faces issues that hinder its growth globally. Despite the market’s recent growth, it faces problems ranging from business risks to volatility. Another limitation facing cryptocurrency trading since its inception is regulation. In this article, we will be looking keenly into crypto regulations in the crypto market to determine their importance.
What Is Cryptocurrency Regulation?
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Cryptocurrency regulation involves the rules and regulations government and its regulatory bodies use to guide crypto trading in their jurisdictions. Unfortunately, many nations are unable to enact these laws successfully. This is why cryptocurrency adoption is slowing down in many of these nations. However, crypto analysts believe that crypto trading will thrive in many nations with proper regulations. This fall by government regulatory bodies is also why crypto tax is suffering in many countries.
Why Is Crypto Regulation Important?
Crypto analysts believe that regulating the trading of cryptocurrencies is beneficial to all, including investors and the government. Cryptocurrency regulation is vital for investors, and if the government can enact proper laws, the market is better for all. However, listed below are why cryptocurrencies need regulation in today’s world;
Investor Protection
An unregulated market can be disastrous for investors, as it exposes them to market manipulation and price volatility. Unfortunately, these are the main issues facing cryptocurrency trading globally. Good regulatory guidance, if well targeted, could reduce speculation among crypto assets. This could also mean that the crypto market will become more stable. However, if proper regulations are in place, the market will not face manipulation in the hands of strong holders. Cryptocurrencies are very volatile, and prices can rise and fall rapidly. However, when they fall quickly, investors automatically face losses, which can devastate the investors and the market’s growth. Fortunately, if proper regulations are in place, investors can rest assured stronger forces can not manipulate their assets.
Asset Regulation
The cryptocurrency market is filled with thousands of crypto assets, with investors having little or zero knowledge. However, if regulators enact regulations, crypto markets in their jurisdiction will only allow trading of the asset they know about. This is very important, as some Blockchain projects are rug pulls intending to steal investors’ funds. Therefore, regulatory authorities will force crypto projects to disclose information about their cryptocurrencies to protect investors. This information might include an asset’s performance, risks, and what its future holds.
Protection Against Cyber Attacks
With proper regulations, investors can understand the technological risks of trading cryptocurrencies and make informed decisions. However, the dangers of online and technology-themed fraud continue to rise. This is why investors and projects can lose millions of dollars to cyberattacks at a glance. However, financial regulators can work with crypto service firms to protect investors should cyber-attacks happen in the future. These regulations could also help investors and projects reclaim their investments in case of losses.
Eliminating Money Laundering
Earlier in 2020, there were concerns from China’s government that mafias were using cryptocurrencies to launder money within the country. Crypto analysts believe this was why the Asian nation started to clamp down on cryptocurrency trading within its region. However, with proper regulations in place, regulators can monitor the activities of crypto exchanges. This will allow them to prevent money laundering and combat it if it is already happening. Regulators can also enact severe punishments for crypto firms that fail to comply with these regulations.
Impact Of Cryptocurrency Regulation On Nations?
Cryptocurrencies are here to stay and will remain an asset class in the future. This is why countries need to regulate the market, whose capitalization is over $2 trillion today. For the crypto market in the country, investors receive protection via proper regulations. However, the nation itself will also enjoy the dividend of these regulations if they are operational and efficient. For governments, crypto regulation will boost its market growth. This growth will also see many investment and financial companies offer customers crypto-related products. This means more revenue in the form of tax generated for the nation.
Financial regulators must also ensure that crypto gains are appropriately taxed, as it is beneficial to their nation. They can enjoy income from them without hindering crypto investors and traders. Regulations will increase the adoption of cryptocurrencies in the long run, as many nations will want to enact these guidelines. Countries will see cryptocurrencies as a form of revenue and will want to earn from the investment ecosystem. If this happens, the current market capitalization of cryptocurrency will grow by at least, ten times. The space will automatically become one of the global most prominent investment ecosystems. In summary, crypto regulation is suitable for investors and great for nations that embrace it.
A Look At Crypto Regulations Globally
Its top financial regulator- the Securities and Exchange Commission (SEC), sees cryptocurrencies as security. Alternatively, the Commodity Futures Trading Commission (CFTC) views Bitcoin as a commodity. The U.S SEC mandates crypto exchanges within its jurisdiction to register under the Financial Crimes Enforcement Network (FinCEN). These exchanges must comply with AML/CFT regulations under the Bank Secrecy Act (BSA) mandate. However, the nation is taking a new approach, as it is working on new legislation with CFTC.
Canada
In Canada, the country’s regulators take a different approach toward digital assets. Crypto exchanges and organizations in Canada are Money Service Businesses (MSBs) and require them to register with FINTRAC. Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada’s apex regulator, tasked with guiding financial service firms in the country.
United Kingdom
In the U.K., cryptocurrencies are properties and cannot serve as legal tenders. Alternatively, crypto firms must get a license from the Financial Conduct Authority (FCA). Unfortunately, this license does not cover them offering crypto derivatives trading services. However, the FCA mandates crypto holders to pay capital gains tax on the profit realized from trading, subject to factors. Alternatively, Europe remains one of the most thriving crypto trading and exchange ecosystems. This is why cryptocurrency trading is legal almost everywhere in Europe. If financial regulators continue to provide a transparent regulatory framework for nations under it, Europe will become crypto’s future capital.
Asia
However, in Asia, the regulators also take a different approach to regulating crypto trading, crypto exchanges, and crypto tax. Under its Payment Service Act (PSA), Japan classifies cryptocurrencies as legal property. This is why crypto investors in the country must pay tax on gains. The Financial Service Agency (FSA) also regulates the activities of crypto exchanges and blockchain firms in the nation. Unfortunately, cryptocurrency trading in China has hit a stumbling block recently. The country does not see digital assets as legal tender or even properties. Unfortunately, the People’s Bank of China (PBOC) bans crypto exchanges from operating in the country.
Last year, to cap off their detest, the country banned crypto mining operations in its terrain. Like China, India does not see cryptocurrencies as legal tender and commodities. The Asian nation’s regulations towards cryptocurrency trading remain uncertain. Lastly, in South Korea, the Financial Supervisory Service (FSS) continues to improve its regulations toward digital assets. The regulators also subject crypto firms and exchanges to strict AML/CFT obligations. Crypto gains below $2,000 in South Korea are tax-free, while gains above are subject to 20% tax.
Africa
The story isn’t the same in Africa, as crypto adoption is not high in the continent. A typical example is Nigeria- Africa’s economic hub. At writing, the country also possesses Africa’s highest number of crypto users and investors, according to MistyDew Africa. Trading cryptocurrency is an offense in the nation, and citizens trading within its jurisdiction could serve time in jail. Unfortunately, its financial regulators cannot grasp the concept of cryptocurrency trading, hence why it is banned. According to its regulators, crypto trading is alien to their financial system, and they do not see a future in it. This is also the same story in many african nations, as cryptocurrency adoption continues to suffer. However, with proper regulations, Africa’s crypto space could thrive and generate revenue for their struggling nations.
Did The U.S. Just Approve Cryptocurrencies?
Some days, Cryptocurrency regulation took a giant leap in the U.S., as a congressman introduced Digital Commodity Exchange Act (DCEA). Congressman Glenn Thompson, earlier in the week, presented a new bill before the U.S. Congress. This bill (the DCEA), if passed, will establish a reporting regime for cryptocurrency exchanges in the country. According to Thompson and co-sponsors, the bill will help close the regulatory gaps creating uncertainty in the nation’s crypto market. Thompson is very optimistic about this bill, which set to open a reporting regime for crypto exchanges with the CFTC. The CFTC regulates futures trading in the nation, and also has a massive role in its crypto market regulation.
However, in Thompson’s DCEA, crypto exchanges will comply with new regulations from CFTC, without complications. If they fail to register, it will not affect their operations, as the bill only tends to provide them with more optional coverage. Alternatively, the DCEA also restricts the interference of the U.S. SEC over crypto exchanges. While the new bill looks pretty progressive, some parliament members are not convinced with its optional compliance offering. However, according to Thompson, the bill is not impositional, as it is just a guide. If this bill passes, it will signal that the U.S. is critical of the growth of its cryptocurrency space. The bill will also further promote crypto adoption massively in the nation. For crypto exchanges, they will see it as an alternative to the state-by-state licenses governing them.
Conclusion
Cryptocurrency regulation continues to be a hot topic, within and outside the crypto space, as its benefits remain enormous. Investors are more protected and will likely fall into a manipulated market. For crypto firms like exchanges, they also get more cover from regulators, which will improve their service offerings and growth. With proper regulations and adequate taxation principles, nations can also generate more revenue. However, earlier this week, the U.S. took a giant leap to become the crypto capital of the world. Whether that will happen or not, only time will tell.
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