Cryptocurrency regulation can be a controversial topic, but many experts say crypto investors should welcome you.
For starters, more regulation could mean more stability in a notoriously volatile crypto market. “Regulations will and have to come at some point, which would further stabilize the market,” says Tally Greenberg, director of business development at Allnodes, a platform that provides hosting, monitoring and staking services. “That protects investors, so that’s a good thing. It’s not a bad thing.
Still, many cryptocurrency enthusiasts fervently oppose any new regulation. They say it would hinder innovation and goes against the spirit of cryptocurrency, which emphasizes decentralization at its core.
For these anti-regulation crypto enthusiasts, the decentralized nature of digital currencies, which, unlike traditional currencies, are not backed by any government institution or authority, is a huge draw. So, from this point of view, any new regulation would represent a threat to decentralization which is a feature, rather than a bug.
The new regulation also has the potential to protect long-term investors, prevent fraudulent activity within the crypto ecosystem, and provide clear guidance to enable companies to innovate in the crypto economy, according to Aaron Klein, a senior fellow at economic studies at the Brookings Institution. , focused on financial technology and regulation. But the next regulation will have to strike the right balance, he says.
“You actually have three possibilities: no regulation, poor regulation, good regulation,” says Klein.
What’s Next in Crypto Regulation?
While a surge in mainstream crypto adoption in 2021 sparked ongoing debate about the government’s role in this largely unregulated sector, clear rules are still being developed. This has left the industry guessing as thousands of digital tokens and currencies are introduced, and new companies and platforms spring up to help store and trade them.
“Policies haven’t been designed yet, because there’s no precedent for blockchain and crypto, so it’s a hell of a task,” says Greenberg. “I understand why people are stalling, but something has to happen soon.”
Recent conversations on Capitol Hill suggest that it is not a question of if there will be more regulation, but when. President Biden signed new crypto legislation related to taxes on the bipartisan $1.2 trillion infrastructure bill late last year. And the Federal Reserve is toying with the idea of issuing an American digital currency.
The Federal Reserve released a long-awaited report in January exploring the costs and benefits of a government-issued digital currency. The report ultimately deferred a final decision on whether to go ahead, and the Fed is giving the public and other stakeholders until May 20 to provide input before taking further action. stable coins are also a hot topic, with many experts anticipating that it will be the first type of cryptocurrency be regulated.
While the new regulation has the potential to bring more stability to the crypto market, it remains a highly volatile and speculative investment. That is why financial experts advise most investors to keep crypto below 5% of their portfolios and never invest in crypto at the expense of saving for emergencies or paying off high-interest debt.
Why crypto regulation would be good for investors
We asked experts for their thoughts on the changing crypto regulatory landscape. Here’s why they say more regulation would be a good thing for crypto investors in the long run.
1. More stability in the market
Cryptocurrency regulation could be a healthy development for the industry, at least as far as everyday investors are concerned. More regulatory guidance, if well-targeted, could help reduce speculation among crypto assets. Less speculation may lead to greater investor confidence, which could attract more long-term investors who have so far said no thanks to a highly speculative and volatile crypto market.
“Even if it doesn’t attract more people, it can change people’s current behavior,” says Klein. Enthusiasts claim there are many benefits cryptocurrency has over fiat currency and other asset classes, but those benefits can only be fully realized “if an appropriate regulatory framework is put in place,” according to Klein.
How the price-sensitive asset class will react to regulation in the long-term is difficult to predict, as it will depend on whether the US government takes a more lenient or strict approach. In the short term, any new regulation could inspire knee-jerk reactions from investors to the markets, suppressing the trading values of cryptocurrencies. For example, when China banned cryptocurrency transactions in September 2021, cryptocurrency markets fell. But in the long term, regulation may have the potential to stabilize the market and reduce some risks for crypto investors, says Greenberg.
To be clear, the new regulation could slow down the process for those trying to get rich quick by predicting the next coin to go “to the moon,” he says. But that’s a good thing for long-term investors.
“Slowly but surely, we are not only being massively adopted as an industry, but we are also more or less stabilizing. Regulation will stabilize the market even more,” says Greenberg.
2. Increased investor protection and confidence
Crypto investors currently have little to no protection in the market as there is no regulatory framework in place to ensure asset protection.
Some exchanges maintain compliance with evolving federal and state regulators in the United States. This includes many high-volume, established exchanges in the US, such as base of coins and Gemini, but are not regulated in a similar way to public stock exchanges or alternative trading systems. That can be problematic, according to Timothy Massad, former chairman of the Commodity Futures Trading Commission and senior fellow at Harvard University’s Kennedy School of Government.
“Most of the trading that goes on in the crypto world today is not regulated by any federal authority, and that’s a big gap,” Massad says. “That means investor protection is much, much weaker on these large exchanges than it is on our stock markets or our futures market.”
That’s why regulation is needed to make the market safer, says Klein. Cryptocurrencies are likely to remain a risky investment, like individual stocks, but investor protection could make the market less vulnerable to outside manipulation. Safer markets can lead to greater investor confidence, which often means higher value over time.
“[Regulation] is important for investor confidence. It’s important for basic fairness, and ultimately it’s important for the industry to grow,” says Klein.
3. Safer crypto ecosystem
Crypto has been described as the “Wild West” by SEC Chairman Gary Gensler due to lack of regulation in the industry. The lack of laws and policies in this burgeoning area has created an opportunity for widespread fraud, scams and scams. carpet pullsand market manipulation.
“Cryptocurrencies are not subject to requirements to prevent fraudulent manipulation. It is not subject to conflict of interest standards,” says Massad. “My point is simply that we don’t have the same kind of standards that we have in other markets. Today, that means buyer beware, essentially.”
Crypto crime has grown tremendously in the last two years. Scammers took $14 billion worth of crypto last year, a record compared to the $7.8 billion scammers took in 2020, according to a report by blockchain data firm Chainalysis. And there are more than 17,000 altcoinswhich tend to be even more volatile and speculative than Bitcoinand come with an older risk of crypto scams and fraud. Even the most advanced and enthusiastic cryptocurrency experts understand that there are many new and evolving risks in the world of cryptocurrency right now.
But there are several ways to protect your crypto. For starters, beware of some common red flags that are similar to classic money transfer and credit card fraud scams, such as obvious misspellings in emails or social media posts, promises to enrich you, or even crypto schemes. large-scale social networks known as rug pullers.
To protect your digital wallets from hackers, practice good digital security habits, like using a hot or cold wallet for added security or holding your crypto on an exchange with strong security. It is also extremely important to keep track of your wallet key and not show it to anyone. Losing your key or having it stolen could mean losing your crypto entirely.
“As much as I like decentralization and lack of government [involvement]I’m glad you’re paying attention, because unfortunately with crypto there are a lot of scams,” Kiana Danial, author of “Cryptocurrency Investing for Dummies,” recently told NextAdvisor.