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What Happens if Cryptocurrency is Regulated?


Crypto regulation is among the most controversial topics in the crypto industry. The US Securities and Exchanges Commission (SEC), the Commodity Futures Trading Commission (CFTC), and other global regulators continuously fight grip the cryptocurrency market.

However, most regulators have yet to understand how crypto assets and the broader blockchain industry operate.

This lack of comprehensive insight has caused a dilemma between crypto firms and regulators.

This dilemma sprouted from a lack of a clear regulatory framework for crypto assets as regulators and firms fight over the stance of these assets as securities.

Although lack of oversight appears to be the point of attraction for most crypto proponents, it might be a factor rendering the novel industry susceptible to bad actors.

So while some investors panic, thinking a regulated crypto would affect their business, others look forward to a better future. With that in mind, let’s explore the possible outcomes of a regulated crypto ecosystem.

What Would Change When Crypto Becomes Regulated?

A lot could change in a regulated cryptocurrency ecosystem. If cryptocurrencies finally become regulated, here are the possible areas that would be affected.

  • Crypto prices
  • Regulators’ Jurisdiction
  • Cryptocurrency investing

Investors in the financial market know what to expect as stocks are heavily regulated. These regulations serve as a hedge for investors against scams and other associated risks.

However, cryptocurrencies lack a clear regulatory atmosphere as no legislation is available to guide regulators.

That spreads a choking air of uncertainty around the crypto market, increasing the risk of trading.

How Will Crypto Regulations Affect Assets Prices?


Some experts believe regulatory oversight will stabilize cryptocurrency prices. Crypto prices have not recovered from the 2022 downturn after soaring to the highest peak in 2021.

The asset class has been on its way down to rock bottom, escalated by the Terra collapse in May 2022.

Most experts believe the Terra catastrophe wouldn’t happen if the crypto industry had regulatory oversight.

A regulatory atmosphere might have prevented the project founders from succeeding in such a scheme, saving the crypto space from the calamity that crashed assets’ prices.

Others believe regulations would help stabilize crypto prices since they could attract more institutional investment.

READ ALSO: US SEC Chair to Defend Actions on Crypto before HFSC

It could also boost investors’ confidence in pumping more funds into cryptocurrencies.

According to the analyst, massive capital inflows in a regulated crypto environment could stabilize prices and allow mainstream adoption.

Mainstream crypto adoption would increase its value and stability.

Regulated crypto assets will be subject to best practices and standards that could stabilize the market by reducing manipulations that may increase volatility.

Adam Reeds, co-founder, and CEO of Ledn, a Canada-based cryptocurrency lending firm, think crypto price concerns have little to do with lack of regulation. Reeds explained that he looks forward to a transparent and regulated digital assets industry to protect his clients.

A Clear Regulatory Pathway Could Define Regulatory Jurisdictions

Regulatory jurisdiction has been an issue for regulators, especially between the US SEC and CFTC.

Both regulators debate which assets to apply federal securities laws and which to apply commodities law.

But this would not happen if clear guidelines for classifying cryptocurrencies as commodities and securities existed.

The SEC would therefore know which asset classes to watch over as securities and who to attack for faulting securities laws.

The same applies to the CFTC. The cryptocurrency services providers will also have a clear registration path and do the needful before launching products.

If cryptocurrencies had regulations, crypto firms would not fight the SEC or CFTC when the regulators launch enforcement actions on them.

This scenario has played out severally with crypto firms and SEC fighting a legal battle over alleged securities violations.

Such issues occur because crypto lacks legislation. One example is the long-running legal battle between the SEC and XRP issuer, Ripple Labs.

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The duo has been in court since December 2020 over XRP’s status as a financial security.

Another is the looming lawsuit between the SEC and Coinbase after the regulator issued a Wells notice to the crypto exchange over possible securities law violation.

Furthermore, if a clear regulatory pathway emerges for digital assets, regulators would know how to control some crypto actors, which proves confusing for them. These include crypto miners, validators, and protocol developers.

How will Crypto Regulations Affect Cryptocurrency Investing?

·        A level Playing ground

A clear regulatory pathway could create a level playing ground where all crypto market participants are subject to the same rules and guidelines.

It will make the crypto market fair and transparent and boost investor confidence.

·        Reduce Fraud

Fraudulent activities such as rug pull and Ponzi schemes are prevalent in the crypto space because of a lack of regulations.

Regulated cryptocurrencies will follow strict guidelines that may prevent such occurrences and avail investors of a means to recover investments in the case of fraud.

·        Mainstream Adoption

Regulation may accelerate mainstream cryptocurrency adoption and integration into the broader financial system.

Due to the lack of legislation, the existing guidelines for crypto investing are uncertain, patchy, and complex, posing challenges for investors to understand.

However, if clear legislation emerges, cryptocurrencies will become regulated, making their use and investing simpler for investors.

READ ALSO: Binance Will Retire LUNC Deposit Addresses. Details Below

Bottom Line

Indeed, the cryptocurrency industry is rapidly evolving and nearing primetime adoption.

Though global regulators fight to straighten things out in the complex and unstable market, the lack of legislation frustrates their efforts.

Proper legislation for cryptocurrencies will birth a regulated crypto industry where investors and service providers are confident and safe to operate.

And who knows crypto might surpass the over $48 trillion stock market as it goes mainstream.



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