Crypto regulations are a set of laws and other legislatures designed to set enforceable rules within local or international crypto markets.
They could be issued by government bodies, financial institutions, or other parties that act as market authorities.
Crypto regulations are a controversial subject, widely discussed and debated on a global scale. Numerous experts believe that the crypto industry was designed to avoid third-party intervention, constant monitoring, and control from regulatory bodies. Thus, for the most part of the crypto existence, the industry was free from strict laws.
The Law vs. the Crypto Market
In recent years, the absence of cryptocurrency regulation has driven the market toward questionable practices. Numerous companies entered the market with not-so-honest intentions, banking on the colossal hype behind the blockchain industry.
Naturally, these companies failed to deliver on their promises and nudged the entire industry toward a massive bubble. Finally, with enough cases of scamming, fraud, and even money laundering, the bubble matured and almost took down the entire industry.
In 2022, the crypto industry witnessed one of the most crippling downturns in its short existence. While experts still debate the extent of regulatory influence on the crypto bubble, the crypto market definitely needs to have certain safeguards and precautions against fraudulent and dishonest practices.
The uprising of global crypto regulations
Many believe that, with proper laws in place, the crypto world would be massively different in 2023. Naturally, various government bodies took notice of the 2022 crypto bubble, since its impact was felt across the global financial system. Even the traditional stock market suffered some losses in this process.
Thus, 2023 has become, by far, the biggest year of crypto regulations. Various countries updated their regulatory framework to accommodate the crypto market. As a result, new local laws and international regulations were launched or introduced. While the situation varies from country to country, most new laws have a mission to stabilize the crypto industry and make it more accessible for average investors.
The inherent problem with crypto assets
But why are the crypto markets inherently unstable and volatile? There are three main reasons. First, any new market with a lifespan of 14 years and a lack of proper oversight is susceptible to similar volatility. Some experts state that it is a natural course of industry development, as maturity is reached through experimentation. Sometimes, free market experiments lead to unfavorable outcomes, but it is perceived to be a part of the overall industry establishment.
Secondly, we have a more specific reason – crypto technology was designed to be anonymous and decentralized. While these concepts liberate the market participants and grant them unprecedented freedom from intrusive parties, anonymity could also lead to market uncertainty.
Finally, crypto coins are digital assets, not directly tied to any physical commodity, which creates a certain level of volatility across markets. When combined, these three factors make the crypto world significantly riskier than normal markets.
Digital assets that are owned anonymously are simply more likely to be displaced, and certain regulations are warranted to alleviate these threats.
The benefits of regulations for crypto investors
Due to the above-mentioned reasons for crypto volatility, certain regulations are more than welcome on the market. With a healthy mixture of safety, accountability, and preserved decentralization, regulations could transform the entire crypto landscape immensely. Let’s discuss:
Security and reliability
It is no secret that the general public has become skeptical about the reliability and security of cryptocurrencies. From scandalous crypto exchanges to highly fluctuating crypto prices, the market is often perceived as a risky investment.
While this statement rings true in certain situations, the overall crypto industry has acquired an unfair reputation. Thus, the implementation of various safety regulations could go a long way toward convincing investors that this is a reliable trading environment. As a result, the crypto world could enjoy an influx of fresh investors that no longer view crypto as a dangerous venture that could become a sunk cost.
Aside from the immediate dangers of fraud and displacement of digital currency, investors have concerns about the general stability of the crypto market. Throughout the years, even the flagship Bitcoin has experienced sizable fluctuations. Naturally, these frequent price variances discourage investors across the globe.
Price, liquidity, and market distribution regulations could stabilize the crypto market tremendously. As of this point, the blockchain algorithm is the only moderator with numerous crypto exchange markets, which leads to unfortunate loopholes and speculative investment.
Without proper regulations, human manipulation can overpower the crypto exchange algorithm, leading to even more volatility than usual. Appropriate legislation in this department could prevent manipulative practices and increase overall market stability.
Increased trading activity and liquidity
Well-implemented laws and regulations could also warrant crypto market growth in the long run. As the general public gradually eradicates their concerns about crypto asset safety and price stability, additional investors will enter the market, resulting in increased cryptocurrency transactions and improved liquidity.
It is important to remember that average traders do not have the time to investigate and examine new markets. So, a healthy dose of regulations can be a vital green flag to invite newcomers. Even in the short period of six months in 2023, the crypto laws presented by the Security and exchange commission (SEC) have positively shifted the public view on crypto.
The slippery slope of regulations
After recounting the plentiful benefits of cryptocurrency laws regarding security, price stability, and other essential matters, we must mention the possible downsides. While numerous regulations will objectively improve the crypto market, this process might turn into a chain of increasingly demanding and limiting laws.
Sometimes, it is difficult to determine a silver lining between essential regulations that support the free market and those that constrain its free-flowing nature. Thus, we might soon experience the introduction of laws that go against the decentralized and anonymous nature of cryptocurrencies. If that happens, the crypto world might lose its biggest advantage and become a digital variant of the fiat currency.
So, despite the crypto market desperately needing fundamental regulations to protect its users, preserving the core principles that make this industry valuable is essential.
The crypto landscape is still very young and has yet to fulfill its potential. Numerous market participants are introducing unique ideas to develop this industry, but uncertainty still surrounds the crypto world. We are witnessing the foundational years for crypto technology, and the emergence of sensible regulations could be a catalyst for its mainstream adoption.
However, regulations are a double-edged sword. Without careful examination and due diligence, regulations could swiftly lead the crypto market toward centralization and loss of freedom. The margin between helpful and limiting regulations might be razor-thin, and it will be interesting to see how the crypto world navigates this challenge.