Crypto Regulations and Their Impact On The Blockchain + Cryptocurrency Landscape

Person holding a scale, an open book, and cryptocurrencies

As cryptocurrencies have increased in popularity and more people have started owning and trading them, they have come under the watchful eye of governments around the world. Many people consider that, by nature, cryptocurrencies are anti-establishment. Consider the fact that the first cryptocurrency, Bitcoin, was originally designed to allow people to transfer assets peer-to-peer without requiring a central authority like a bank or other financial institution. In addition, cryptocurrencies have become a source of value and wealth that, unlike fiat currencies, are decentralized and not under the authority of or controlled by any centralized government.

Naturally, whether governments fear that bitcoin and other cryptocurrencies could be used to find a way around capital controls, for money laundering or illegal purchases, or could eventually end up becoming more dominant than their own national currencies, it is clear that there is some skepticism and resistance from many of the world’s governments regarding cryptocurrencies. In order to keep a closer watch on cryptocurrencies and try to prevent any of their possible fears from materializing, as well as to try to benefit from the emergence of digital currencies themselves, governments have made a number of different moves.

Introducing Crypto Regulations

One move that many governments around the world have begun to take in response to the growth of the cryptocurrency market has been to introduce crypto regulations. Fiat currencies have value because governments say that they do, giving governments immense influence over these currencies. Cryptocurrencies are decentralized and are not controlled by any government or central authority, but one way for governments to exert more control over them is to provide rules and regulations for how they are to be used.

It is easy to see why more regulation of something that was designed to not be controlled would be considered to be completely bad, but some say that crypto regulations may have good aspects for the industry as well.

Potential Positives Indicated By Crypto Regulations

Here are a few reasons why some people think that crypto regulations have potential to benefit the industry.

Crypto Regulations Can Stabilize The Market And Make It Safer

Regulations could end up making the crypto market much safer. There will still be some risk involved, as there is with any type of investment, but regulations will bring additional protections for investors, which will likely cause the market to experience less outside manipulation.

This could be positive for crypto investors, because a safer market means strengthened confidence from the general public which can lead to prices going up over time.

Crypto Regulations Could Make Cryptocurrencies Seem More Normal

Other more traditional financial assets and currencies are all regulated. The fact that cryptocurrencies have been unregulated has painted a picture of the crypto market being like the wild west. By regulating crypto, the asset class may be considered to be more normal and less chaotic, which could help to encourage mass adoption of cryptocurrencies by people in the general public who have been sceptical of the crypto market due to that fact it has been unregulated for much of its existence.

Regulations Could Make Crypto Assets Easier To Categorize And Understand

Through regulatory guidance, financial institutions can begin to classify these assets through their legal status. Classification can make cryptocurrencies seem more legitimate to financial institutions and individuals.

Regulations Could Provide An Avenue For Financial Institutions To Invest In Cryptocurrencies

Financial institutions need to understand the landscape of cryptocurrencies and the risk factors associated with them before they can promote them or consider investing in them. Promotion from financial institutions could possibly strengthen the crypto market.

Perceived Threats From Crypto Regulations

As mentioned, although there could be potential positives that come from regulation, ultimately the regulation of a market that was created to be free of control from centralized institutions is ultimately considered to be a threat by most investors and experts within the crypto space. Here are some of the reasons why.

Crypto Regulations Are Regulators Attempts To Centralize The Crypto Market And Control It

Unfortunately, the regulation of cryptocurrencies in some ways goes entirely against the thesis and reason behind their creation in the first place. The fear is that regulations will add a layer of centralization to something which by nature is decentralized. One of the most attractive qualities of cryptocurrencies is that people can be anonymous when trading and that blockchain technology allows for peer-to-peer transactions without third-party institutions being necessary to act as middle-men. Now, there is a feeling that third-party institutions are trying to get involved and exert their control over something that was designed to help people avoid having to have third-parties involved in their financial transactions.

One of the greatest qualities of blockchain technology is that blockchains involve consensus and are not controlled by any one entity, so institutions trying in any way to control the blockchain industry goes against the goals of the technology itself.

News Of Cryptocurrencies Being Regulated Or Of Cryptocurrency Bans Can Negatively Impact Their Prices

News of cryptocurrencies being regulated according to securities laws in a given country or of countries banning or considering a ban on cryptocurrencies can have a negative impact on their prices. For example, in mid-April the price of bitcoin dropped after Turkey’s central bank banned cryptocurrency payments. A month earlier the bitcoin price also fell when it was reported that a law was being proposed in India to ban trading and holding cryptocurrencies.

Also, for many in the crypto space, these proposed crypto bans are just another classic example of central authorities trying to control something that was designed to give people a way to avoid them by exchanging a decentralized currency peer-to-peer instead.

How Regulations Could Impact Crypto and Blockchain

There are many different ways that crypto regulations could impact the crypto space, so it’s easy to see why some of the most influential people in the industry are concerned. Here’s a look at some of the potential impacts depending on a few different scenarios.

Countries Ban Ownership And/Or Trading Of Cryptocurrencies

As was briefly mentioned above, multiple countries have proposed or are considering this route. Rather than creating rules and regulations to govern the industry, they may just ban it altogether. This could bring negative press to the crypto space which has had a negative impact on prices. The most obvious impact of these potential actions against cryptocurrency is that entire populations of countries would not be able to legally participate in owning and trading, immediately hindering the path to mass adoption and reducing the number of current users by significant numbers.

If countries ban owning and/or trading cryptocurrencies, people from those countries who own a significant amount of crypto may have enough incentive to move elsewhere, creating a mass migration of crypto holders and traders.

Countries Implement Very Strict Regulations And Policies On Crypto And/Or Tax It Heavily

Even more countries may end up going this route. If the regulations seem particularly harsh, newcomers may feel that it is too difficult to get involved in the crypto space and could skip investing in cryptocurrencies altogether, ultimately making mass adoption of cryptocurrencies more difficult to achieve.

If cryptocurrencies are taxed too heavily or in an unfair way, more people may choose to liquidate their positions and there could be a mass selloff, which would ultimately impact crypto prices.

Crypto Regulations Are Implemented In A More Fair Way

As noted, if crypto regulations are implemented in a fair way, they could contribute to stabilizing the market, which could strengthen confidence among the general public. If this happens, some people who have been more skeptical may decide it’s the right time to invest. A more stabilized market could also encourage even more institutions to invest in cryptocurrencies, which would likely have a positive impact on crypto prices.

Although many people consider regulations to be bad for the industry in general, how these seemingly inevitable regulations impact the crypto market will largely depend on how they are implemented and what the regulations stipulate.



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