How Can Cryptocurrency Be Regulated? Why is it needed?

Introduction 

Rules and regulations are a must in every part of human society. No matter what kind of country, people, society, or other kind of community there is throughout the world, each and every one of them has some kind of rule that must be followed. This is for an efficient working environment for the citizens. Since the launch of the first virtual currency, ‘Bitcoin,” in 2009, the market has been in a mess. But recently, cryptocurrency exchanges have fallen under the regulatory scope of the BSA (Bank Secrecy Act). This means that exchange service providers must register with FinCemn, execute a CFT program, keep clean records, and submit reports to their superiors. But how crypto can be regulated and how these regulations can be implemented will be explained to you in this article. 

Why is cryptocurrency regulation needed? 

The digital market is still on the rise. Most of it is not under any kind of regulation, so a lot of illegal acts take place every day. The most flourishing of these corruptive actions is market manipulation, which causes a lot of negative effects including changes in market prices, instability in the financial position of the crypto, losses to many investors, and many more. Read more about Is crypto market manipulation illegal ?

Although the basic principle of this market is to create a decentralized and censorship-free world, it is still a double-edged sword. While it operates without any type of restriction, a lot of problems occur due to a lack of oversight and control. Additionally, the objectives of both government and institutions and of virtual assets conflict with each other, making it more possible for the cryptocurrencies to be regulated. 

How can cryptocurrency regulation take place? 

• Playing catch-up 

A lot of these activities are not globally harmonized. The ‘crypto asset’ term itself refers to a broad variety of digital assets that are issued privately using technologies. The intentional use of cryptocurrency has attracted multiple regulators for banks, commodities, and others with fundamentally unique frameworks and goals. There are regulators who prioritize consumer protection, while others focus more on safety and financial integrity. A large number of crypto actors exist, like miners, validators, protocol developers, and others, which cannot all be controlled by the government. 

Different organizations working in financial markets are given permission to do certain actions under certain conditions. But the state’s responsibility does not carry over to the participants, who are difficult to identify because of the underdeveloped technology. Regulations lead to conflicting roles in centralized organizations like crypto exchanges. 

Lastly, along with creating a framework to regulate both actions and actors, the government may also have to take a position on how the extraction of digital currency through underlying technology stacks up against public policies. 

Originally, crypto assets were digital assets that were stored as codes and accessed digitally. Physical or financial collateral backup is not really possible in this situation. Their value is affected by fiat currencies or other prices in the financial market. In particular, the regulators are working on a full range of technology-related risks to incorporate into regulations. These risks have already caused high losses to a large number of investors from causes like hacking, accidental loss of control, access, or records. 

A few of these problems might have been less concerning if the cryptocurrency market had been shut down. But this is not an option anymore. A lot of state and national functions have now been connected with the crypto world through services such as leverage and liquidity. Public figures and celebrities have also been trying to get a piece of this financial action. This has led to the principle of ‘same activity, same risk, same rule’ being applied in the crypto market, which has put pressure on the regulators. This has also forced the authorities to implement public policy. Is it even possible to integrate these systems? 

• Conflicting national approaches 

You should know that during all this time, the government has not been just idling around but has done a lot of work. In some countries, new regulations related to these digital assets have been amended, while others are still in the drafting stage. Still, different countries have tried to approach this situation in their own way. 

On one hand, harsh rules have been implemented, like the banning of virtual currency or no transactions using virtual currency, while some other nations have been very welcoming to this innovative financial situation and are encouraging their companies to develop the crypto currencies in the market. 

Similarly, the international regulatory community has been working hard to keep the monetary market safe and sound. In the beginning, it was believed that financial integrity would be preserved by minimizing the use of crypto assets to facilitate money laundering and other illegal actions. The Financial Action Task Force started moving rapidly to provide a worldwide framework for any kind of digital asset. Many regulatory guidelines have been issued by IOSCO on crypto exchanges. 

Thus, the regulatory tree has started to grow and is expected to grow into a big and sturdy one. However, taking a long time might make the national authorities lock onto a different framework. This hypothesis has led the IMF to take action. A global response is called for by the IMF so that each and every gap in this digital market can be filled and the losses can be kept to a minimum. 

A worldwide regulatory framework will construct a systematic market, which makes consumers more confident about investing in these assets. 

Conclusion 

Since the last decade, virtual currencies have slowly but successfully flourished throughout the world. Now it has turned into a separate kind of asset, and setting up regulations that will be in favor of both the government and investors will be difficult. Therefore, the only thing investors can do is wait for these regulations to be implemented and see how they will affect the market.

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