crypto industry

How would crypto regulation help consumers and developers?

Earlier in 2022, the esteemed IMF had declared that there is much to be done in regard to enforcing regulation across the crypto sector. Unlike many national governments, the IMF had never directly opposed the cryptocurrencies but had always warned about their extreme volatility risks and lack of protection for end-users. The iconic organization has emphasized the urgent need for regulation in crypto, citing provision for a framework that will work both ways. One, regulation in crypto should be framed in such a way that it never undermines the excellent benefits of crypto- but rather helps to ensure their full realization. Read more about what is a smart contract?

On the other hand, the IMF has also stated that crypto regulations would follow certain protocols that will mitigate typical crypto risks, work in the best interest of users and innovators, as well as prevent dissolution of monetary policy of central banks.

Also Read: Why go for recurring crypto Investments you ask?

Global collaboration required

The IMF has also stressed on the fact that regulation in crypto demands global collaboration. The regulatory framework must cover all the major aspects of the crypto industry, including payment, tax, derivatives, trading, and more.

The IMF has outlined 3 key principles for regulation in crypto on global scale-

  • Mandatory authorization and licensing requirement for crypto-asset service companies
  • Requirements must be customized as per the principal applications of stablecoins and crypto assets
  • There must be clear declaration on standard regulations to be followed by businesses operating in, for, or with the crypto sector

National governments approaching crypto regulation

While some of the countries are staunch on their ban on crypto, a big bunch of other nations have already started preparations for regulation in crypto.

For example, the USA is probably leading the pack, in spite of opposition from various major quarters across the country. Despite the SEC’s “Wild West” stance on crypto, the Treasury has already approved crypto as a valid “currency”. As per the reports, Financial Stability Oversight Council and President’s Working Group are working hard to develop a pragmatic framework for regulation in crypto.

In Canada, crypto dealers and exchanges are registered with provincial regulators.

Australia is another country which is soon to introduce regulation in crypto at an official level. Among many things regarding regulation in crypto, the country is stressing highly on enforcing strong regulation for crypto exchanges.

The European Union has recently signed an agreement regarding regulation in crypto. Officially termed as the MiCA proposal, the agreement has stressed on the implementation of regulation in crypto that will cover stablecoins and crypto-asset (unbacked) issuers. According to the agreement, the proposed framework for regulation in crypto will be designed to protect financial stability, safeguard investors and traders- as well as allow innovation and developments across the crypto sector.

How will crypto regulation help?

Contrary to the myth that regulation in crypto might limit crypto adoption and industry growth, a regulatory framework is expected to increase crypto adoption. In other words, experts who are voicing for regulation in crypto are optimistic that a legal structure would actually be beneficial for the crypto industry.

More stability and less volatility

The recent crypto crash wiped out around a jaw-dropping $800 billion-worth of investor wealth. While the volatility quotient is credited for the astronomical rise in crypto prices, the same aspect could lead to devastating declines in a matter of a few days. Put simply, cryptocurrency is an extremely risky asset, much riskier than traditional stocks and bonds.

Implementation of regulation in crypto is poised to reduce speculation about cryptocurrencies that otherwise have led to dramatic surges and dips in the past. To make things simpler, regulation in crypto will make the overall crypto market better immune to external manipulations.

You might argue that regulation in crypto will prevent the astronomical surges that the crypto is famous for. But, on the bright side, regulation in crypto will also keep the risks of catastrophic losses at bay that otherwise the crypto sector is infamous for.

Protection for users

Absence of structured regulation in crypto could leave investors and traders stranded, especially in times of crisis. Although some exchanges are now compliant with state and federal regulations, those regulations need huge improvement to ensure strong protection for the consumers. Put simply, crypto exchanges, including those that are regulated, are not under the legal compliance the same way as regulated and standardized conventional stock exchanges.

Lack of regulation in crypto basically offers immense room for nefarious and irresponsible acts on behalf of the service providers and external attackers.  Proper implementation of regulation in crypto will keep such illicit acts in check, make the crypto-asset companies more responsible with their operations- and ensure better protection for investors and traders.

Safer and more credible industry

Crypto scams and crimes are on rise. In 2021, scammers took away around $14 billion-worth crypto- almost the double of the number recorded in 2020. One of the major factors that abet the surge in crypto scams is lack of regulation in crypto regarding fraud prevention.

Implementation of regulation in crypto will help to enforce protocols and standards to prevent fraudulent activities in the crypto scape. It will eventually help to raise the credibility quotient of the industry, making crypto more trustworthy.

It must be stressed here that regulation in crypto is predicted to not only retain the existing investors but also pull in more people from all across the world. A major section of aspiring investors are apprehensive of crypto investment and trading due to lack of regulation in crypto. Enforcement of the regulatory framework would help to bring order and structure in the crypto scene- and increase its appeal even before the potential investors who are apprehensive about crypto.

Benefit for crypto businesses and innovators

Crypto regulation will benefit crypto businesses and innovators in two ways.

First, regulation in crypto will help to ensure clear norms, standards, and rules about the legal and tax requirements of a crypto-related project or business. Lack of regulation leaves you with a clumsy and confused stance on these major aspects that eventually affects business growth and realization of profits. But when you will be able to develop clarity on these key aspects of your project and business, you will be able to scale up your venture in a more structured and profitable way.

The other way is linked to the points mentioned above. A regulatory framework would help to win the trust of investors towards crypto, thereby bringing in more (direct and indirect) takers for crypto projects and businesses.

Final words

While crypto regulation is indispensable, regulators must be careful about not hampering the basic essence of the overall concept of crypto.

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