Will regulating Bitcoin make crypto coins safer? There are two basic things in cryptocurrencies that have attracted the attention and interests of the people.
- One, it is the huge growth potential and returns that it provides with its spectacular price volatility which has attracted the investors.
- Two, it is the same price volatility factor that has attracted the attention of the regulators.
Now the question is will regulating crypto will make it a safer playing field.
Or to be more precise, will regulating Bitcoin, which is known to influence the prices of almost all available crypto coins, make the other coins and the market safer on the whole.
If you too are wondering whether or not this is possible, here is an article that will tell you all about it.
Typically, the subject of regulating Bitcoin and other crypto coins in the United States in particular is a complicated matter because there is no single federal authority to ensure that.
Ideally, there are three specific authorities that look after three different aspects of Bitcoin such as:
- The CFTC or The Commodity Futures Trading Commission that considers Bitcoin to be a commodity and regulates it
- The IRS or Internal Revenue Service that considers it as a property and therefore looks after the tax related matters and
- The SEC or the Securities and Exchange Commission that oversees matters concerning the Bitcoin futures exchange-traded funds or ETFs.
Though these different organizations have already laid down some regulatory frameworks from their end, the entire crypto industry has a long way to go as of now to make this exciting crypto world a much safer playing field for the average crypto traders and investors.
Will Regulating Bitcoin Make Crypto Coins Safer?
Yes, if Bitcoin is regulated, it can make the crypto space as well as other coins available in this space much safer for the traders and investors.
This however does not mean that the potential risks related with crypto currencies will be eliminated but, with proper protection given to the crypto investors, it will be less likely that the crypto market will be subject to outside manipulation.
Even if there is any, the investors along with the crypto market will have enough strength and potential to face it.
This is good news for those crypto investors who are apprehensive about the price volatility and unpredictable nature of this market.
If and when the crypto market is safe, it will raise the trust and confidence of the people and more and more people will take part in it.
This will not only increase the trading volume and adoption of cryptocurrencies, but will also increase the prices of the crypto assets over time.
This will be good for the crypto market at large.
Surprisingly, there are lots of people who really do not know what Bitcoin actually is – whether it is a digital coin or a tradable asset on the digital platform.
They only know that since it does not have any backing from the central government it is not a legal tender.
When Bitcoin is regulated it will be very easy for the government to clear its classification as a tradable asset or a digital token.
This will ensure that the people will know what exactly they are buying and selling when they deal with Bitcoin.
Therefore, it is quite easy to guess why the government should try to regulate Bitcoin.
Ideally, regulating Bitcoin will make the entire ecosystem much safer for the players.
It will protect the investors from its proneness to market manipulation and price volatility that may result in wide price swings of the crypto coins.
Regulating Bitcoin will also make the investors more aware and therefore there will be no panic actions performed by them while buying or selling crypto coins.
Regulations will make the Bitcoin users knowledgeable about the inherent risks, the underlying assets, and performance of the asset, their adoption, and the potential.
Bitcoin regulation will also prevent illegal use of the coin. Ideally, being the most popular crypto coin and one with the largest cap, it is quite easy to use Bitcoin illegally without any proper regulatory oversight. Hence it is quite tempting for the criminals and dark web players.
Regulations such as disclosing the real identities of the buyers and sellers on the platform can prevent such possibilities.
Bitcoin regulation will also reduce the risk in storing these coins virtually or digitally because it will in fact reduce cyber security related issues.
This means that there will be less or no online frauds and hacking which will minimize the chances of the crypto investors incurring significant losses due to theft of funds.
When Bitcoin is regulated, the governments can put several measures into practice that may require every crypto holder to protect their assets.
It will also give the investors a fair chance to address their concerns to a relevant and responsible governing body and reclaim the lost assets from the service providers who were holding their assets on their behalf.
With such benefits provided by regulating Bitcoin, it is needless to say that it will spike the need to regulate other crypto coins as well, especially the stablecoin which usually has their value tied with a fiat currency such as the US Dollar.
Ideally, the need for regulating the stablecoin is strongly felt now and in October last year there was even a report published about it by the President’s Working Group on Financial Markets.
In this report, the Congress put up a proposition to create a framework that will help the regulators to act properly within the sphere.
The report also mentioned a lot of other things over and above the lack of a uniform standard for the stablecoin.
It said that there is an increase in the use of stablecoin as a mode of payment which increases its risks and makes it more vulnerable.
Some of the notable risks of it are:
- Operations of and run on the stablecoin
- Unfair and non-uniform concentration of economic power and
- Interference of the payment system.
The President’s Working Group on Financial Markets also recommended some more legislator amendments and inclusions that will help in mitigating the above mentioned risks. These include:
- Giving power to issue stablecoin only to the banks and other depository institutions that are FDIC insured to protect the crypto investors in case of a run on stablecoin
- Ensuring a federal oversight on monitoring risk management systems, custodial wallet services as well as the stablecoin issuers and exchanges in order to manage and minimize risks of the payments system and limit custodial wallets while lending out of consumer stablecoin and
- Restricting commercial affiliations of custodial wallet service providers and stablecoin issuers so that it limits concentration of economic power and also does not mislead the crypto investors.
All these seem to be very good for both the crypto investors as well as the market on the whole.
However, this leads to one most important question – can Bitcoin be really regulated – which is the next section of this article.
Can Bitcoin be Regulated?
In order to understand this aspect, you will need to look into matters quite deeply and closely.
First, you will need to know the role and potential of the SEC in regulating the ICOs or Initial Coin Offerings.
This is typically the way to sell crypto coins to the investors for the first time and is pretty similar to the Initial Public Offerings or IPOs through which shares of a company debut in a stock market.
Following the ideologies of the predecessor Jay Clayton, the current SEC Chair Gary Gensler also believes that ICOs are nothing but unregistered securities offerings.
Therefore, these should also fall within the purview of the SEC to oversee whether or not these are compliant with the securities laws.
For that matter, the SEC has enforced a lot of actions against the ICOs that are believed to be such unregistered securities offerings.
Now, with Bitcoin and other crypto coins growing consistently and rapidly in popularity and adoption, it is time that the US government focuses on imposing some regulatory measures on their use and sale.
Ideally, there are two central issues that call for such regulations, which also results in a debate.
One, the digital currencies on the whole poses a risk on the macro-economic level.
This is because Bitcoin and other crypto coins can act as substitutes for a global currency which may affect the global economics and sanctions by the United States.
Countries like China, Russia, Iran, Venezuela, and others have already started exploring the uses and potential of cryptocurrencies to get around US sanctions.
This is a serious threat considered by the United States government because it may result in their losing global authority.
Two, it is believed that when cryptocurrencies are used extensively and freely, it will pose some risks at the microeconomic level as well.
This will cause serious adverse effects on the aggregate.
Typically, one of the most attractive features of Bitcoin and other crypto coins is that one can send them anywhere in the world quickly which may be worth a few pennies or billions of dollars, and that too for a negligible fee.
Good as it may be, it can be potentially very dangerous if it is used by malicious players and criminals.
This, the government believes, will encourage illicit activities that will be supported innately by a global decentralized currency and include everything from terrorist funding, ordering and carrying out assassinations, buying and selling of illegal drugs, money laundering, evading taxes, and the list can go on and on.
Ideally, it is the primary purpose of cryptocurrencies, which is to create a distributed and decentralized system, which have become two of the major factors that may either make or break Bitcoin and crypto coin regulation.
Since it is decentralized in nature, there is no single authority to control it.
In fact, the control of Bitcoin is in the hands of innumerable individual and separate entities that are spread all over the world.
This makes it pretty difficult for any single entity to have total control over and manipulate the network as they wish.
Also, since it is distributed, Bitcoin can exist across several different places or nodes at the same time.
This once again makes it pretty difficult for a single authority to enforce its power and control across borders.
This means that there is no chance for the government or any other third party to raid an office technically and shut it down.
All these mean that it will need a lot of work, effort and ruling to enforce any sort of regulation on Bitcoin and other coins globally.
Two of the most important areas to consider for that matter are a general accord of opinion and centralization.
And, with the absence of even a single piece of guidance that can be followed, it makes things really difficult for a single regulatory alphabet agency to control Bitcoin and other crypto coins.
However, as of now, as said earlier, in the United States cryptocurrencies are regulated by three different bodies namely the CFTC, the SEC, and the IRS, which is another important factor that makes it quite complicated to craft an overarching or a set of comprehensive regulatory guiding principles.
However, to put a long story short, yes, Bitcoin as well as other crypto coins can be regulated.
As of now, for a start, there are regulations imposed on the fiat onramps, Anti Money Laundering or AML compliance rules, and strict Know Your Customer or KYC guidelines are in place.
However, Bitcoin or crypto coin ownership is not considered to be entirely illegal in the US as it is in countries like Egypt, Ecuador, Bolivia, and Morocco.
It will still need some more time and a lot of winding of the moral framework of the Constitution in order to infringe crypto ownership rights and declare Bitcoin ownership as illegal in the United States.
No matter what the governments of different countries do, shutting down the use of Bitcoin or other crypto coins completely is practically impossible without a complete ban on them.
Therefore, it will take a tremendous effort from the part of the government to deracinate something decentralized such as Bitcoin completely.
There are lots of other ways to buy and sell Bitcoin and therefore the future seems to be less tangible and more dystopian.
With that said, there are a few chokepoints that may hinder the adoption and use of Bitcoin severely.
One such logical and quite effective way is to regulate the centralized entities such as the fiat onramps or exchanges and wallets.
Back in the time when cryptocurrency was in its nascent stage the crypto exchanges did not need much of an approval or input from any regulatory authority to operate.
However, the US government has started to step into it as cryptocurrency is poised to hit the mainstream.
For example, all crypto exchanges operating within the peripheries of the United States are now required to follow strict KYC protocols and AML policies.
And, the SEC, CFTC and the FinCEN or Financial Crimes Enforcement Network all have played a significant role in pushing it.
This leaves the crypto exchanges with no other alternative but to abide by the rules and stick to whatever the government wants.
This means that in turn the vast majority of crypto users who rely on these platforms for buying, selling, and trading crypto coins will also have no other option but to bend automatically to these regulations imposed on the crypto exchanges.
It can be said at this point that though the regulators may not be able to shut down completely the technology underlying Bitcoin they can surely ruin the user experience for the great majority of them.
This will be enough of a hindrance that will eventually reduce the use of crypto coins for most users.
Another good choke point to focus on in order to regulate the use of Bitcoin and other crypto coins is to target the individual crypto users directly.
It is a fact that irrespective of the popular belief Bitcoin as well as some privacy coins even are not anonymous.
In fact, people even argue that Bitcoin is even much easier to track and trace in comparison to fiat money because every record of every transaction is maintained in a public and transparent ledger.
Therefore, if there is a federal force working closely with the crypto exchanges it will be easy to track the source and destination of crypto addresses from the blockchain.
It will help the law enforcement to pinpoint the actual individual in question related to illicit use of crypto coins and even reveal the identities of other people behind such transactions.
The government can also use its immense cyber firepower to find out cyber crimes related to cryptocurrencies.
It will be much easier to dive deep into the dark web to find out more of such professional crypto use illegally, though it will be a bit tricky.
What is Happening Really?
Now, all these may seem to be very theoretical to you. Therefore, here is what is actually happening in the crypto space regarding Bitcoin and crypto regulation and what may happen in the near and distant future.
In spite of the fact that it is considered to be extremely secure to buy and sell crypto coins via blockchain technology, the CFTC and the SEC have still issued several warnings regarding scams that pertain to crypto investments.
Since there are different authorities responsible for different aspects of crypto regulation and control, things are happening differently in the crypto circuit but with more comprehensiveness.
All these indicate that in the near future the crypto market will be more secure and safer with added protection for the investors and traders participating in it.
In short, the crypto space will be less susceptible to market manipulation by any external factors or major players. It will be less speculative than it is now.
Effects on the Entire Crypto Market
Apart from making the crypto space much safer, Bitcoin and other crypto coin regulation will also have some other significant effects on the crypto market on the whole, thereby stabilizing it in the process.
One such notable effect will be seen in the tax department related to crypto. With an astronomical gain in value of some particular crypto coins, there may be a huge increment in the capital gains liabilities of the crypto users.
Therefore, with proper tax guidelines for digital currencies people will be well aware of the tax implications.
The users will know when they will be hooked to pay taxes while buying or selling crypto coins or even while sending or exchanging cryptocurrencies for goods and services.
They will be compelled to include all these incomes and capital gains into their tax file and declare them to the IRS.
The investment companies and others related to cryptocurrencies will also experience the effect of such regulations imposed by the government which will in turn make the crypto market much safer.
Ideally, there is a fair amount of technological risks involved in crypto investment since current blockchain technology may become obsolete down the road due to the pace of changes and disruption.
This imposes significant risk to the crypto investors because they want it to remain relevant and valuable for the long term because they usually make a long term investment.
Therefore, when such regulations are imposed on the crypto industry by the governments it will force the investment companies to provide all relevant information regarding their infrastructure.
They will also need to have a proper and qualified group of financial advisors who have experience in cryptocurrencies and its investment.
They can help the users in understanding the technological risks of Bitcoin so that the users can make a more informed and educated investment decision.
In short, it can be said that regulating the crypto world is much better and more feasible than banning the sale and use of virtual currencies completely.
It will slaughter future innovations. On the other hand, regulations on it will ensure stability in the crypto market and in the financial system on the whole.
It will not cause the next financial crisis, as it is believed by some crypto critics, since people will then not ditch fiat money in favor of Bitcoin and other crypto coins.
Therefore, bitcoin and crypto regulations are welcome.
It is very tempting to invest in cryptocurrencies seeing its huge potential for growth and returns but there are some risks. Good news is that the regulatory bodies have stepped in to minimize the risks and also protect the consumers.