2018 is predicted and has been the year where regulators have focused to control cryptocurrency with, at the very least, rhetoric about rule-making and enforcement. Most countries involved or could have the potential to be affected by cryptocurrency have begun to consider regulating cryptocurrency trading. This move was largely influenced by the high speculation in 2017 which saw most cryptocurrencies hit their highest price.
For good reason, South Korea and China became the first countries to take a stand on cryptocurrency trading. Crucial because 80% of the trading volumes originated from these countries. South Korea regulated the anonymous trading of cryptocurrencies and China, took a more radical approach and banned trading altogether.
Crypto has long been the home of rebels, anarchists, and libertarians. When the public gets involved and market cap reaches a certain amount, the government always steps in, looking out for consumers and fighting criminal behaviour. This guide discusses the cases for and against this regulation.
Regulation is not the devil
Many investors in the western world are used to regulation in all parts of their life so regulation of trading in the cryptocurrency space is not necessarily a bad thing. In fact, it’s necessary to legitimize cryptocurrency and make it attractive to investors. Certainly, when people are starting to see the vision, application and benefits of cryptos many are taking large position sizes and risks and want to be protected.
Ironically, cryptocurrencies will receive more recognition. Interest in areas of the world and industry that think its dodgy will probably increase. Enforcement of cryptocurrency regulations will also help address the rising cases of fraud and scams that keep investors at bay.
The press has covered scams, hacking and fraud so regulations will help stop such events from occurring. Without proper regulation, accountability and judicial protection institutional investors will unlikely invest and mass adoption will not happen. Regulation will, in fact, reassure investors and the public and actually increase the investment into the asset class. The Chinese approach is too strong and too extreme and it resulted in a sell-off from the pump and dump. A thoughtful, considered and well-balanced approach to regulation cryptocurrency could mean society changes forever, for the better.
Rules generally lack flexibility, freedom and the need for bureaucracy and compliance. As governments prepare rules to guide cryptocurrency trading in their jurisdictions, crypto startups could experience difficulties due to the uncertainty associated with regulation.
Understandably, the near-term post-December’s meteoric rise and crash would mean regulation will mean a more difficult trading environment. ICO’s that aren’t genuine or legitimate will drift away and poorly run platforms will cease to have enough clients. At this moment in time, the biggest challenge is to convince service providers in the mainstream to work with crypto tokens and coins.
Last month, announcements by South Korea and China about impending cryptocurrency regulations contributed to the panic in the market that led to a massive sell-off and a dip in cryptocurrency prices.
The Venezuela Petro – a case study
It’s no secret the Venezuelan government is desperate to raise funds to pay for imports and service its debts. To do this, it has piggybacked on cryptocurrency and created the “petro”. The public could start buying petros on February 20 in a pre-sale. Its claimed these purchases raised $735 million with more money predicted to enter on March 20 in what would be the largest Initial Coin Offering (ICO) to date.
So why is this different to any other ICO we’ve seen?
One is that it is on a national, federal level and can have profound effects on the people of the nation. This affects industries such as finance, law and other parties seeking to avoid breaching US and EU economic sanctions. President Maduro has made no secret of his intention to use the Petro explicitly to circumvent US sanctions. This typifies why the industry needs a regulator as cryptocurrencies are not immune to sanctions exposure.
There is a steady trend towards more regulation. The US Treasury Department has issued calls for countries to intensify oversight of cryptocurrencies. In Japan and Australia, cryptocurrencies are already regulated. As for the European Union, moves towards developing cryptocurrency regulation are in motion. The European Banking Authority has indicated it will bring virtual currencies within the scope of existing anti-money laundering (AML) and anti-terrorist financing rules.
America has been quick to act directly to this threat and has led strongly with a precedent. Trump’s Executive Order No. 13808 prohibits any US person from purchasing or dealing with any “new debt” issued by Venezuela with a maturity of more than 30 days. What’s crucial about this is it wills et an example to other countries to deter them from creating their own cryptocurrency as it will mean they would be able to conduct business with the largest economy in the world in this manner.