Is Regulation Unavoidable In Crypto? [Detailed Analysis]

Is Regulation Unavoidable In Crypto? [Detailed Analysis]

Cryptocurrencies may not have performed up to expectation in 2022, but that has not slowed their global adoption.

This year alone, many top brands have started to accept them as payment for goods and services, with new blockchain service firms continually springing up worldwide.

This only attests to the fact that cryptocurrencies are now an important part of global finance and investment and will remain so, at least in the nearest future. 

Surprisingly, despite the plummeting value of many cryptocurrencies, investors and analysts are optimistic about a bull run in 2023.

There is widespread positivity around the projected high institutional adoption of cryptocurrencies in 2023, as many new and existing top firms are willing to commit considerable funds to crypto assets this year.

This projected institutional investment will improve the crypto market’s fortunes if and when it happens.

Alternatively, the uprising of new blockchain projects, with most primarily launching this year, has been touted by crypto analysts as a “glimmer of hope”.

Many crypto analysts also predict that when many of these projects launch, their effect will be positive on the fortunes of the ailing crypto market.

Today, while many are concerned with the growth and fortunes of the crypto market, there are still discussions around crypto regulation.

Unlike the financial market in almost all countries regulated by their central banks and financial watchdogs, the crypto market is primarily unregulated in many jurisdictions.

While many analysts argue that crypto regulation is critical to the growth of the space, some still need to determine if the enactment of a regulatory framework is of topmost priority.

However, before we continue, it is crucial to understand what crypto regulation entails, why it is important, and if it can be unavoidable today.

What Is Crypto Regulation?

Cryptocurrency regulation involves nations’ legislators and financial watchdogs enacting rules and regulations guiding crypto trading services and activities within their jurisdictions.

These rules, regulated mainly by financial watchdogs, are not only to conduct the activities of crypto trading within set jurisdictions but also to offer protection to investors, considering that cryptocurrencies are highly volatile assets.

Taking the aforementioned volatility into account, we gently remind you to stay away from crypto platforms that promise you wealth in the matter of seconds.

Stay alert and conduct a proper research before deciding on a crypto product.

While there is plenty of choice and crypto websites to choose from, a solid example that has gained significant positive reviews among the crypto community is Bitcoin Profit.

The platform helps you find a licensed broker and gives access to useful trading tools. 

Many nations, via their Apex Bank or corresponding financial watchdog, typically regulate financial-related trading like stocks and commodities in their country.

These regulations, expected to offer protection to investors, will also help the nation prevent and combat money laundering and other illegalities around crypto trading activities. 

Alternatively, the 2022 collapse of FTX and the charges against its owner-Sam Bankman-Fried, have also triggered many calls for crypto regulation.

The reason behind these renewed calls is that many investors and stakeholders believe that, had proper rules been in place, it could have prevented the debilitating losses.

However, there is no denying that regulation remains vital to the crypto space today, as its benefits outweigh its disadvantages if any.

Why Is Crypto Regulation Important?

The talks surrounding the importance of crypto regulation to investors, crypto firms, and even the government cannot be over-emphasized.

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This is because, with the enactment of a proper regulatory framework, crypto traders and investors will enjoy investor protection, which may limit their exposure to losses.

Alternatively, many crypto analysts have also stressed that the importance of proper regulations to nations is that they can grow their economies by tapping into the growing crypto market while earning revenue from crypto taxes. 

Crypto service firms can also benefit from government protection and may earn rewards by helping the government combat crypto-themed money laundering activities. 

However, listed below are the importance of crypto regulation.

Investor Protection

The dangers of an unregulated market can be enormous for investors, as it can expose them to market manipulation and price volatility.

Also, with proper regulations in place, the market will be devoid of manipulation in the hands of strong holders.

Unfortunately, these are a few issues facing the crypto ecosystem today.

However, with an excellent regulatory framework, there could be a massive reduction in speculation among crypto assets, leading to more stability for the volatile crypto market.

The volatile nature of cryptocurrencies also means that prices are unstable over a short period and can either fall or rise.

Investors immediately lose huge capital when they fall quickly, which can devastate them and the market’s growth.

However, if proper regulations are in place, investors are confident that stronger forces can not manipulate the market.

Asset Regulation

Today, the crypto market possesses thousands of crypto assets, with investors having little or zero knowledge about them.

However, with proper regulations enacted, financial regulators can regulate the trading of assets, especially as some Blockchain projects are rug pulls intending to steal investors’ funds. 

Proper regulations in place can also force crypto projects to disclose information about their tokens to their potential investors publicly. Information like an asset’s performance and risks may help investors predict the future of such an asset. 

Protection For Investor and Crypto Firms When Cyber Attack Strike

The dangers of online and technology-themed fraud and cyber attacks continue to rise in the crypto space.

This is why today, investors and projects can lose millions of dollars to cyber attackers at a glance.

However, with proper regulation, financial watchdogs can work with crypto service firms to protect investors and combat cyberattacks.

These regulations could also help investors and projects reclaim their investments in case of losses.

This will further build investors’ confidence in the crypto project, thus improving the digital asset’s fortunes.

Money Laundering And Other Illegal Activities

In 2020, the Chinese government reported that some mafias were using cryptocurrencies to launder money within the country.

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This incident, and many other related ones, led the Asian nation to start clamping down on crypto trading in the country.

However, if proper regulations were in place, a financial watchdog may be able to oversee more activities within the crypto exchanges in its jurisdiction.

Another advantage is that they could detect money laundering and combat it from the source since they have an eye on it. 

However, if they cannot detect it beforehand, regulators can also enact severe punishments for crypto firms that fail to comply with AML/CFT compliance.

Crypto Regulation: What Does It Mean For Nations?

Like the traditional capital market, cryptocurrencies are an asset class that is here to stay and capable of boosting the economies of nations willing to tap into it fully.

However, countries that can enact proper regulations to guide the market worth almost $900 billion may boost their economies via suitable and quality partnerships.

Related:  5 Different Options For Crypto Investments: Which Is Right For You?

This is why governments must consider regulating them, as it will also protect consumers and crypto service firms operating within their jurisdiction.

Proper crypto regulations in place could also see traditional finance and investment companies offering crypto-related products and services, which will boost the fortunes and adoption of cryptocurrencies.

Alternatively, it will increase the nation’s economy if this happens.

Crypto regulations could also see the uprising of proper crypto-insurance, an entity that does not suit the volatile nature of the digital asset.

Today, Crypto insurance mainly covers indemnity against losses stemming from cryptocurrency theft.

However, if nations adopt proper regulations, insurance companies could be willing to cover portions of trading losses in the future.

Today, crypto tax remains a big issue in many nations, as financial regulators cannot correctly tax crypto gains.

However, many crypto analysts believe that governments that adopt proper regulations may be able to generate sustainable revenue from taxing gains from highly profitable digital assets.

A Look At Cryptocurrency Regulations Around The World Today

Today, while no global body regulates cryptocurrencies, nations continue to adopt various feasible means toward enacting responsive crypto regulating frameworks.

These frameworks, primarily geared towards crypto service providers, are tasked with ensuring that crypto traders are protected and none of the parties fault the law.

However, listed below is how some select nations have been able to regulate crypto activities within their terrain.

United States

Last year, the U.S. announced that it had enacted a new regulatory framework that tasked the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) with regulating and scrutinizing cryptocurrency trading affairs in the nation.

Before now, the SEC, which treats cryptocurrencies as securities, mandated all crypto exchanges within the country to register under the Financial Crimes Enforcement Network (FinCEN).

These exchanges must also comply with AML/CFT regulations under the Bank Secrecy Act (BSA) mandate.

Last year, the Biden administration also announced that it is looking towards cleaning and tackling the illegal crypto activity in the country.

In the announcement, the presidency says it is considering the amendment of the Bank Secrecy Act and subsequent laws against unlicensed money transmitting to apply explicitly to digital asset service providers.

To optimize its new regulatory approach, the nation also plans to complete an illicit finance risk assessment on DeFi by February 2023 and a similar evaluation on non-fungible tokens (NFTs) in July 2023.

With the new legislation, crypto regulations may take a fresh and stricter approach in the U.S., which is likely to benefit all.

Canada

Canada remains one of the most proactive nations towards crypto regulation, as it became the first nation in the world in 2020 to approve the first crypto exchange-traded fund (ETF).

Today, the country has many crypto ETFs, with most trading on the Toronto Stock Exchange.

The North American nation’s financial regulators also classify crypto investment firms as Money Service Businesses (MSBs) and require them to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Alternatively,  the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) regulate the affairs of crypto trading platforms and mandate them to register with their provincial regulators.

European Union

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Europe is one of the most thriving crypto ecosystems, and it is why its trading and activity are legal in almost every country in the continent.

It is also one of the only jurisdictions with a clear framework for crypto taxing, with most countries charging between 0-50% tax on crypto gains.

The 2020 Economic Council regulatory framework- Market in Crypto-Asset Regulation (MiCA), was successfully passed in 2022.

This framework aims to increase consumer protections, establish clear crypto industry conduct best practices, and introduce new licensing requirements to the crypto market under the EU. 

United Kingdom

Outside the EU, the U.K., which considers crypto assets as properties, mandates crypto exchanges within its jurisdiction to register with the U.K. Financial Conduct Authority (FCA).

To strengthen its regulations, the nation’s regulators expect crypto exchanges and custodian wallet providers to comply with the reporting obligations implemented by the Office of Financial Sanctions Implementation (OFSI).

Around October 2022, the lower house of its parliament also passed a bill that now recognizes crypto assets as regulated financial instruments.

Japan

In Asia, Japan takes the lead as one of the continent’s leading and most progressive crypto nations.

The Asian industrial powerhouse, under its Payment Service Act (PSA), classifies cryptocurrencies as legal property.

Japan also mandates crypto exchanges operating and trading within its jurisdiction to register with the Financial Services Agency (FSA) while complying with all AML/CFT obligations.

Regarding taxation, Japan also has a clear path toward crypto trading earnings, as it taxes them under the miscellaneous income category.

In the future, the Asian country, through its legislators, plans to optimize the current crypto regulations to favor investors and the crypto market.

China

Before banning cryptocurrencies, China once classified them as property of determining inheritances.

Unfortunately, Crypto trading is an offense within the Asian nation, as crypto exchanges and mining activities are also forbidden.

However, while it is away from cryptocurrency, the country continues developing the digital yuan (e-CNY), with no date for its release.

Since August 2022, it has continued to roll out its central bank digital currency (CBDC) pilot test program.

Is Regulation Unavoidable In Crypto? Answering the Question

The activities of the last few months in the crypto space have led to renewed calls for crypto regulation by the general public, with many believing that a proper regulatory framework would have prevented a majority of the unfortunate events.

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From FTX and Sam Bankman-Fried’s mismanagement of investors’ funds to cyber hacks and thefts marauding many crypto technology systems, financial experts believe that investors are not protected well enough by a lack of proper regulatory framework.

However, in a recent interview, IMF Chief- Christine Largade declares that regulating the crypto market is unavoidable.

The finance expert believes that the robustness of the crypto market requires thorough surveillance and monitoring, widespread amongst central banks.

In her words, Largade also feels that the increasing rate of illegal activities within the crypto ecosystem needs the urgency of strict enactment of regulation.

Surprisingly, while many crypto analysts in the past have echoed the words of Largade, the feasibility of integrating top-notch regulatory frameworks into the cryptocurrency market has yet to be established.

However, one deterrent to establishing a clear regulatory framework for crypto assets is that cryptocurrencies are non-physical intangible assets.

This is why it has been impossible for the Central banks of many nations to properly regulate their trading, especially as they are used to dealing with tangible assets like stocks.

Another limitation to a unifying regulation of crypto assets is that they are treated differently by many regulators.

This is because different financial regulators see crypto assets as commodities, currencies, securities, or even assets. Hence, this is why there is some level of complexity around its regulations and poses a limitation. 

Lastly, due to the lack of intermediaries, middlemen, and even government affiliation to crypto assets, the nation’s financial watchdogs are unclear as to who will enact these regulations should they be implemented. 

However, as of today, the calls for crypto regulation remain unavoidable, considering the number of harmful activities and losses recorded in the crypto space within the last twelve months.

Unfortunately, while nations may continue to dabble around regulations within their jurisdiction, the question of whether a unifying crypto regulation is unavoidable will remain unanswered, at least for now.

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Written by Alan Taylor
I’m Alan, a technology writer with a decade of experience testing and reviewing software. I’m passionate about providing honest and unbiased reviews to help consumers make informed decisions. With a background in computer science and a talent for simplifying complex concepts, I enjoy exploring new technology trends.