Significance of Adequate Crypto Regulations

Abstract

Cryptocurrency–a newly trending mainstream investment choice–gained popularity due to its exceptionally high returns. However, such extreme profits are too good to stay high forever. Price volatility and market manipulation are just two of the numerous critical aspects of cryptocurrencies that invoke the need for regulations. This article elucidates the importance of proposing an adequate amount of crypto regulations worldwide. Let’s begin with understanding the need for crypto regulations.

Why do we require Crypto Regulations?

Cryptocurrencies are a high-risk digital asset class with potential economic and social vulnerabilities raising the urgent requirement for regulations.

These are the following reasons expressing the requirement to impose crypto regulations worldwide:

• Eliminate Market Manipulation and Price Volatility

• Provide a Stable and Trusting Ecosystem for Consumers and Investors

• Counter Illicit Digital Assets

• Prevent against Online Fraudulence and Cybercrimes

• Motivate Responsible Research and Innovations

• Protect against Money Laundering and Investment Fraud

• Crypto and DeFi Education

Let’s go through each motivation one by one.

• Eliminate Market Manipulation and Price Volatility:

The wild west of crypto has seen several investment bloodbaths–such as the recent collapse of the stablecoin TerraUSD worth $45 billion and many more. Since cryptocurrencies are prone to market manipulation and price volatility, introducing regulations helps to protect investors and traders against hefty financial losses.

• Provide a Stable and Trusting Ecosystem for Consumers and Investors: 

Sudden fluctuations in crypto market pricing disturb the investment mindset. Crypto regulations are expected to promote financial stability for consumers. The regularized crypto environment would provide trust, assurance, and security to investors, traders, and holders. 

• Counter Illicit Digital Assets:

Government risk assessment of decentralized finance (DeFi) and cryptocurrencies would help investors to make informed decisions with the correct sense of responsibility. Moreover, it separates illicit crypto coins from trusted ones--motivating the utilization of verified and assured cryptocurrencies.

• Prevent Online Fraudulence and Cybercrimes: 

The trends of cryptocurrencies proceed with a massive money flow–that has attracted a new range of earning opportunities for online intruders and hackers. The regulations facilitate cyber crypto investigations for easy traceability and custody of guilty. 

• Motivate Responsible Research and Innovations: 

Since blockchain–the tech behind cryptocurrencies–is new to the world, millions have already been invested in research and analysis worldwide. Several renowned institutions and research centers believe in the potential of blockchain technology. Regulations would invite more engineers and researchers to the learning expedition.

• Protect against Money Laundering and Investment Frauds: 

There are several false projects with get-rich-quick schemes in the crypto space–it's hard to segregate trustworthy from fraudsters. The controversial suspicion over cryptocurrencies shadows the genuine projects. The regulatory screening would help investors to search for potential crypto coins and projects.

• Crypto and DeFi Education: 

The initial roots of financial literacy and education in crypto-economics help people to grasp the potential risks of crypto investments and usage worldwide. This global financial inclusion facilitates consumers to make smart financial choices for their future investments.

What could go wrong with Over-Regulating or Under-Regulating Crypto?

Scenario 1: Crypto Over-Regulations

Scenario 2: Crypto Under-Regulations

What are Adequate Crypto Regulations? 

Cryptocurrency adoption has introduced a new lucrative monetizing opportunity for everyone that is out of control and highly susceptible to crimes and economic imbalance. However, in both cases, over and under-regulations brings more limitations than benefits to the crypto ecosystem. 

The government needs concrete implementation and regulations on cryptocurrencies–similar to the release of Internet Banking or Unified Payment Method (UPI). The impact of correctly placed regulations on Internet Banking and UPI has peaked the utilization as well as monetization methods today. In addition, these mediums ease down the money transfer process worldwide–influencing global customer behavior and financial literacy.

Crypto Regulations Worldwide

Since the crypto space is contributing massively to global wealth–none can walk over its existence and potential use cases to generate more income sources. Let's go through a few national and international government initiatives to regulate and utilize digital currencies.

U.S. government agencies such as the Securities and Exchange Commission (SEC) and Federal Trade Commission (FTC) are taking initiatives to understand and regularize cryptocurrencies as high-class digital assets. Whitehouse has disseminated several government departments to create a concrete understanding of crypto and its associated risks. The SEC has been scrutinizing several crypto intermediaries such as crypto exchange platforms, existing crypto projects, etc. Moreover, The U.S. Treasury Department (USDT) is working toward concluding an “Illicit Finance Risk Assessment” on decentralized finance (DeFi) and non-fungible tokens (NFTs) by early 2023.

On the other hand, China has banned all cryptocurrencies outright. However, they are developing digital yuan named e-CNY. Additionally, the country is planning to launch its central bank digital currency (CBDC) initial test program.

India kept its guard against cryptocurrencies–the country prohibited all private cryptos. Moreover, the Indian government imposed a 30% tax on crypto investments with 1% TDS on all crypto trades. However, India supported the technology behind it and rolled out the “National Strategy on Blockchain 2021” by the Ministry of Electronics and Information Technology (MeitY). This strategy concludes the applications and use cases of implementing blockchain in India. 

In addition, countries such as Canada, European Union (EU), Australia, South Korea, Vietnam, Singapore, Japan, and UAE are progressively working on cracking down on crypto finances. 

Conclusion

The global crypto market operates thousands of transactions worth millions on a daily basis. Overlooking such a wealthy investment market could lead to economic imbalance–however, over-regulations or under-regulations would contribute the same way. The crypto space requires a correctly placed field of regulations that allows consumers as well as entrepreneurs to play ethically in a trusted ecosystem.