Why goverment regulations are a good thing for the cryptocurrency markets
In the last two weeks, we have seen governments all across the world zooming in on cryptocurrencies, and fighting them hard.For instance, two days ago, South Korea officially declared that as from January 30th, anonymous trading will be illegal in the country. India and China, two of the world’s largest crypto markets have ramped up their crackdown on cryptocurrencies too. The effect has been a decline in the overall market as uncertainty grows on whether we are approaching the end of the crypto era.
Why are governments keen on regulating cryptocurrencies?
While many people think that governments just want to control; and if possible kill this market, the reason is a bit more rational. It is in the interest of every nation to keep tabs on money that is coming in and going out of the country. Without such control, corruption and other criminal activities would take root since criminals would simply use cryptos to ship their money out to other destinations. However, even from the side of a trader, or any other interested party in the cryptocurrency space, regulation is actually a good thing, unless of course you don’t see the crypto market as a long-term component of your investment portfolio.
Why government regulation is good for the crypto market
1. Big money will come in
Imagine if you were the CEO of a mutual fund, holding billions of dollars in people’s pensions. Would you invest in cryptocurrencies? After all, they are giving returns in the triple digits! There is a good chance that your answer is NO! You know why? Because the crypto market is unregulated and you can lose everything invested with no recourse! And that would probably give you 100 years in prison for “gambling” with investors’ money. That analogy is exactly why regulation will a positive thing for the crypto market. If governments were to create a proper regulatory framework that protects the interest of investors, big money would come in and the market would move up. Prove to this is the rise of Bitcoin in December when it hit $20,000. That unprecedented price rise was anchored on the fact that bitcoin would start trading in the futures market, on government regulated exchanges. Imagine how much of a positive effect, wholesome crypto market regulation, would have no the market.
2. It will weed out criminals in the market
There has always been a perception out there that cryptocurrencies are a conduit for criminal activity. For instance, cryptocurrencies that are focused on privacy can easily be used by drug traffickers, kidnappers, and all other types of criminals. It would therefore make sense for governments to regulate this space, and prevent the scam of the earth from taking advantage of blockchain technology to advance their course.On this front, regulation would bring in an element of moral legitimacy to the cryptomarket. The effect? More people, especially ethical investors would flock into this market and push it up, purely based on the forces of demand and supply.We all want that, don’t we?
3. It will increase government tax revenues
Nobody loves taxes! That’s why the very wealthy in society do everything they can, to reduce their tax obligations. Unfortunately, taxes are good since they help governments provide essential services such as infrastructure and healthcare that benefit all of us. Therefore, regulation would create the framework required for governments to earn revenues from the activities of traders in the cryptomarket. This way, they can offer even better services with this additional revenue stream. Remember the fallacy that cryptocurrencies will wrestle power from governments is actually counterproductive to the growth of cryptos. Governments are important not just for social order, but also to provide services that the private sector might be unable to provide, or cannot provide in a manner that would satisfy the needs of all individuals in the country.
4. Regulation will kill "shitcoins"
There are over 1000 coins in the market right now. A good percentage of them are “shitcoins” or better put, pump-and-dump schemes that are just out to take investors money. The reason why these coins exist is because those behind them know that they can’t get arrested for their actions. That’s why regulation is important, to help get rid of such coins. Through proper regulation, you can put your money in any cryptocoin and be sure that it is a genuine coin. That’s confidence that can go a long way in increasing investor confidence in cryptocurrencies, and in turn bringing in more liquidity in this market to help it grow.
Is cryptocurrency regulation possible?
While some governments have been trying to regulate the crypto markets, their attempts have not been successful. That’s because when one country introduces regulations, traders and other players in the crypto space simply shift to other countries. For instance, when China banned ICOs, Japan saw an upsurge of cryptocurrency trading as exchanges and traders moved there activities there. This neutralized the effect of China’s ban. The same has happened in recent days after South Korea announced a ban on anonymous trading. Japan and other countries that are friendlier to cryptocurrencies have seen an increase in trading volumes. So what’s the way forward?
For crypto currency regulation to be effective, there needs to be a global approach to the issue. As one German minister put it, the global community of nations needs to come up with a clear framework that regulates this new market, without compromising the interests of individual nations. Such a framework would put into consideration issues such as taxation, and local monetary and fiscal policies.
Recap
If you believe in the long-term potential of cryptocurrencies, then it is in your best interest to support regulation of this space. No matter how you look at it, putting large sums of money in unregulated markets won’t do anyone favors in the long-term. The issue at this point should be on how investors can navigate through the market as the regulation talk gains momentum. Should they hold or wait it out until the market settles down?
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