Vancouver(CoinChapter.com): The regulatory system towards cryptocurrency is constantly evolving, but at a slower pace than the crypto market itself. Institutions and the broader public feel a need for a clear and comprehensive regulation to work with cryptocurrency. The widespread scams, phishing, and hacks that the industry faces have no legal repercussions. This strengthens the audacity of the malefactors and presents the image of crypto as a shady character.
Inactive policymakers need to be awakened
The boom in the NFT market in 2021 jolted the government and international institutions. With over $9 billion in NFT sales on Ethereum, a need for a well-defined regulatory system for NFTs can be felt to sustain the market’s development in the future. The NFT market witnessed $1.5 million in illegitimate activities in the last three months of 2021 alone. Although this data is negligible if we compare it to the scale of money laundering happening elsewhere, this detrimental trend may continue in 2022.
The United States and the United Kingdom failed to come up with a clear guideline on NFTs, as there is still some uncertainty on how to classify the asset class. NFT issuers and marketplaces may be required to act in accordance with Anti-Money Laundering and Know Your Customer practices. The long-awaited report of the Fed released in January explored the cost and benefit of a government-regulated cryptocurrency. The report ultimately postponed the final decision on whether to move forward and gave the public and other stakeholders time to share their input before May 20, so that it can take further action.
Similarly, Stablecoins also caught policymakers sleeping. Stablecoins sales also increased five times and accounted for $164 billion at the end of 2021, which was $26 billion at the start of 2021. It continued to grow in 2022 and expanded by 6.8% in the first six weeks of the year. The Financial Stability Board, an international body that monitors and coordinates financial regulators globally, presented its report in 2020 and 2021, where it called for action on Stablecoin. The board has set a preliminary deadline of July 2022 for the establishment of regulatory frameworks in national jurisdictions. The emergence of decentralized U.S. dollar-pegged stablecoins further complicated the regulation of Stablecoin. However, experts anticipate that Stablecoin will be the first cryptocurrency to be regulated.
Why does crypto need regulation?
More regulation of cryptocurrencies means more stability in this volatile market. Still, many cryptocurrency enthusiasts strongly oppose regulations in the crypto market. They believe that it would hinder innovation and go against the spirit of the cryptocurrency, which has the feature of decentralization at its core. Investors and stakeholders have different opinions. Let’s see the views of experts on the crypto regulatory landscape and why they consider it to be good for investors.
- More stability in the market – A regulatory framework will bring stability to the market and will create a healthy environment in the industry for the investors who are concerned about every day’s market fluctuation. If the government comes up with a great regulatory system, it might help reduce speculation among crypto assets. Less speculation will raise more confidence among investors, which may result in attracting more long-term investors who have so far said ‘No Thanks’ to a highly speculative, volatile crypto market. Even if it does not draw in more people, it may at least change people’s current behavior toward cryptocurrency. If we clearly say, regulation of the crypto market may slow the role of those trying to get rich quickly by speculating on the value of the next coin.
- Investor protection and raising their confidence – Crypto investors currently have no protection in terms of their investment as it doesn’t work under a regulatory system that can ensure the protection of assets. Some exchanges work in accordance with emerging federal and state regulators in the United States, including the leading exchanges such as Coinbase and Gemini. However, their regulation is not similar to the stock market and other trading systems. Investors’ protection in the crypto market is weaker as they are not regulated by any federal authority. Regulation is needed to make the crypto market safer for investors. A safer market would further increase confidence among investors, causing the crypto market to grow.
- Safer Crypto Ecosystem – The lack of laws and regulations bolsters the audacity of wrongdoers, and the whole industry suffers from widespread fraud, scams, rug pulls, and market manipulation. Crypto crime has grown significantly in the past 2 years. According to a report by blockchain data firm Chainalysis, scammers took $14 billion worth of crypto last year, which was down from $7.8 billion at the beginning of 2020.
While a regulatory framework has the potential to stabilize the crypto market, it’s still a highly volatile and speculative investment.
The government’s effort to design a regulatory framework
The report of the Financial Stability Board also analyses the developments that will take place throughout the year 2022. The report also shed light on the progress of central bank digital currencies (CBDCs) in more than 91 countries across the globe. This shows that the government is recognizing the potential of digital currencies. The government continues to put effort further and policymakers need to do significant work to design a comprehensive regulatory system that can foster innovations and allow the broader public to adopt digital assets. CBDCs could enhance tax compliance and track financial transactions in a better way. But on the contrary, it can become a severe hindrance in the way of cryptocurrency adoption. This could even replace some decentralized digital currencies as CBDCs profit from stability, and it believes that government institutions inspire many consumers.
Crypto needs a well-regulated system that can make sure to foster innovations, and progress should not be hindered. Cryptocurrency has the potential to become a more equitable future and can renew the financial system.
“This story has been published by CoinChapter.com and the information contained in this article is for only informational purposes. It does not present any investment advice nor does it serve as a substitute for individual investment.”