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Cryptocurrency regulation has been one of the most contentious topics in the world of finance. Authorities and financial bodies have struggled to keep up with the breakneck pace of development. Most have just begun to form panels to learn more about it.
Governments are Taking Steps with Crypto Regulation
The asset class has received a bad rep for its efforts, with the misconception that illicit activity is still fairly prevalent. Bitcoin has come a long way from its day of being used on marketplaces like Silk Road. Indeed, it was never intended to be used for illicit activity.
Satoshi Nakamoto made explicit references to the shortcomings of the banking system in Bitcoin’s code and communications. The idea was to make a system of money that is equitable, which it is so far living up to. Certainly, the amount of fraud occurring in traditional banking is what is more worrying.
That maligned perception is slowly fading away in almost every part of the world. Governments are warming up to both cryptocurrencies and blockchain technology. Some may be moving slower than others, but the benefits are clear to most.
When it comes to specific regulation, however, governments have been flagging. This is understandable, as this is an entirely new space with unprecedented methods of operation. The approach to regulating a decentralized means of exchange, store of value, and product/service is complex.
For many years, governments had been unsure of how to tackle cryptocurrency. Some had even ignored it entirely. Most were of the mind that it was something that is illegal or unethical. However, this year that has changed, with governments seeing reason in the use of the technology.
U.S. Government Crypto Regulation Increases
The growing enthusiasm of governments is evident in the number of bills that have been introduced by the US government. Between January 2019 and now, the US Congress has introduced 40 cryptocurrency and blockchain bills. Only two of these have become law, but the pace is remarkable. The US has started to address the concerns that it is falling behind.
The majority of these bills have to do with enforcing consumer protection and KYC/AML standards. Several entities, most notably derivatives platform BitMEX, are facing investigation for an alleged lack of KYC/AML standards.
While cryptocurrency supporters may have reservations for CBDCs and specific cases, the overall approach by authorities is improving. That cannot be denied, for if cryptocurrencies are to enter mass usage, it must be standardized and regulated. The larger market must feel secure about investing in a burgeoning asset class.
Where Will Regulation Take Us?
So what can on-the-fence investors and current investors expect in the near future? For one thing, there is going to be an inevitable ramping up of market scrutiny. Authorities will be speeding up their examination of entities like exchanges.
On their part, exchanges will make doubly sure that they do not cross authorities. Additionally, as is already the case with Coinbase, exchanges will be careful about jurisdiction. US authorities are already seeking to investigate entities that are located internationally but have customers in the country.
Taxation will also be an important focus, but this is already being looked into. Several blockchain software companies offer both users and authorities tools for tax reporting. On a wide scale, however, it will be some time before taxation becomes standardized.
On the other hand, privacy coins will almost certainly be a pain point for governments. The IRS has awarded grants to companies to help break the privacy protocol of Monero. Whether this happens, and whether the market finds a way around it, is open to debate.
Governments have also been looking into central bank digital currencies (CBDCs) with increasing keenness. This is almost a given, with some of the world’s biggest economies already well into pilot programs.
China is the most notable example, and other countries are worried that it may take the lead in the race. Reports are that Japan and the United States are also putting a lot of effort into it, but there are definitive dates. Smaller economies like Estonia are also looking into the matter.
Where does the market stand as we head into 2021? On almost every front, it appears good. The increased regulation implies that the governments are taking note of the growth of cryptocurrencies. So far, regulation has not been draconian.
The market itself also bodes well, as it cannot live in a bubble and requires a bridge with traditional markets. The first few years of this decade will set the foundation for the asset class. So long as lawmakers take a reasonable approach to regulation, the market will flourish.
What do you think about regulatory efforts? Can innovation and consumer safety be balanced? Let us know what you think in the comments below.