When Bitcoin was first introduced, the world got its first glimpse of decentralized finance. Understandably, more than a few people were left a little confused. At the time, all people understood was that it wasn’t backed by gold and it operated separately from the government.
These days, people have a better understanding of cryptocurrencies. As more and more blockchains are introduced, they continue to show us the possibilities of this technology. With all this attention, you can expect the government to start taking a closer look at cryptocurrencies and whether or not they can benefit from them.
Why the need for regulation?
Though the idea might sound a little contradictory, it all makes sense when we start considering how much money we’re actually seeing with cryptocurrencies. Bitcoin, at the time of writing (March 17, 2022), is currently valued at 40,356.20 USD with about 18,925,000 BTC currently in circulation. When you factor in the number of users in the crypto space, around 295 million as of December 2021, it’s easy to see how governments will see the need to do their part in regulating what they can.
These days, it’s become a norm to find Bitcoin markets with no fees. This sign of adoption has been prevalent over the past year, particularly when other blockchains started entering the market.
The interesting thing is that crypto veterans are seeing these regulations as positive changes. Despite the decentralized nature of Bitcoin, the proposed regulations are seen to help users with the volatility of the market and help protect long-term investors from fraudulent activities.
The positive and negative impacts of regulation
In the past, the only problem crypto users had was that they had to learn how to quickly sell Bitcoin. These days, our issues have grown deeper. Despite the touted benefits of regulation, it’s understandable how a lot of users in the crypto space are more than a little upset at the prospect of government participation.
Bitcoin and its fellow cryptocurrencies have attracted a lot of their community on the basis that the supply, control, and regulation of these currencies aren’t under any government control—with regulation, a lot of that is sure to change.
If you count yourself among those disappointed, try to think about it in terms of security. The reason why regulation is being supported by fellow crypto enthusiasts is that it helps deter money laundering and can even prevent terrorists from being funded with cryptocurrencies, supporting a safer and more open environment. The question now is, how much of the crypto space can governments regulate and control?
Not a lot of it, at least with the proposals and suggestions we’ve seen. Let’s take a look at some of the benefits you might expect from this:
One of the most touted benefits seen with regulation is behavioral in nature. With regulations, the hope is that users in the crypto space would learn from better regulatory guidance. This guidance is seen to minimize the effects of uncertainty and speculation, allowing the markets to maintain value a lot better than before.
Given how cryptocurrency enthusiasts are all aware of the dangers and risks associated with crypto trading, it’s no surprise that regulatory boards hope to be able to tackle this issue. With their participation, they hope to minimize the effect that these fraudulent users have, allowing everyone to trade with some peace of mind.
The hope is that all this leads to a better environment for long-term investors. After all, with more long-term investors, Bitcoin can see the greater value over time—thanks to the fact that the market would be less likely to be affected by outside influence.
Countries that have crypto regulations
To give you a better understanding of what might happen with cryptocurrency regulations, let’s take a look at a few real-world examples.
Thanks to its federal system, each state is allowed to have its own set of regulations. For example, the state of New York launched a licensing framework in 2016 allowing for crypto businesses and exchanges. In 2018, Wyoming introduced regulations exempting cryptocurrency developers from securities laws assuming they meet certain conditions. All this goes to show how the country is working its way towards complete adoption.
In 2020, the European Union with its 27 member states drafted legislation titled the Markets in Crypto-Assets Regulation or MiCA. This legislation identifies cryptocurrencies as regulated financial institutions, something that legislators hope will increase consumer protection and confidence.
El Salvador gained popularity sometime last year as the first country to declare Bitcoin as legal tender alongside the U.S. Dollar. President Nayib Bukele hopes that this early adoption can help the country take advantage of Bitcoin’s growth and help alleviate poverty in the country.
From being one of the most proficient Bitcoin mining countries in the world, China has drastically changed its stance toward cryptocurrencies. Last June 2021, China cracked down on mining activities and outright banned crypto trading in the country with the hopes of introducing their own digital currency sometime in the future.
Is it still good to invest in Bitcoin?
We’d understand if people think that they’d missed their chances at buying Bitcoin—we’re here to tell you that that is not the case.
The thing with regulations is that while they may be components of traditional financial institutions, their role in financial markets is unquestionable. After all, with improved stability and security, we’re bound to see more and more investors joining the crypto space.
The trick now is to keep on your toes and do your own research. Cryptocurrencies are still in their infancy, meaning you are undoubtedly not too late to the party.