In its early days, the cryptocurrency space was known as the ‘wild west’. This was because a lack of crypto regulation meant it was regularly involved in unlawful and illicit practices.
Today, things have improved. Sometimes this is the result of responsible crypto community members stepping up, sometimes it is by the enforcing of regulation by jurisdictions.
There remains, however, inconsistency in the rules, ineffective regulations, and resistance to regulatory oversight in the industry.
Why Oppose Crypto Regulation?
Clearly, anyone with nefarious intent will oppose scrutiny, oversight, and legally enforceable rules.
But there are others who are resistant to further regulatory activity.
A primary reason for this is the view that no government body should be able to control what happens in decentralized finance.
Part of the ethos behind DeFi is that it is beyond the control of the small number of people and big businesses which currently control the financial markets.
They also feel regulation stifles innovation.
It is an understandable stance, but not mine.
Why Cryptocurrency Needs Regulation
My view is that the lack of consistent regulation is preventing the broader adoption of cryptocurrency and putting investors at unnecessary risk.
The belief, perhaps misinformed, that crypto is connected to criminality acts as a barrier to the involvement of prominent financial names in the industry.
Inconsistent regulation leaves gaps for bad actors to exploit unwitting investors with scams and frauds.
Better regulation could bring about the market stability that is missing now.
As business consultant Tally Greenberg said, ‘Regulations will come up, and they have to come up at some point. That safeguards investors, which is a good thing’.
Five Reasons I Believe Crypto Regulation is Needed
- Protect investors by preventing market manipulation: Cryptocurrency market manipulation and price volatility are common. Consider Bitcoin, the world’s oldest and most popular cryptocurrency, which reached all-time highs in early 2021 before plummeting and losing a large portion of its value. As a result of the lack of authorised information on these digital assets and the technical complexities associated with them, it is critical to put regulations in place to protect investors.
- Fewer cryptocurrencies of higher quality: There are thousands of cryptocurrencies. Most investors are only familiar with a few, like Bitcoin, Ether, Ripple, and Dogecoin, but know very little about the thousands of other virtual assets. A regulatory authority clearing cryptocurrency, disclosing all information about the performance, risks, and potential of digital assets, could protect consumers.
- Understanding technological risks: Technology is advancing at a breakneck pace. This poses a threat because rapid changes can potentially render technology, including blockchain, obsolete in the future. Given the pace of technological change, information infrastructure and cryptocurrency-savvy professional financial advisors are required. This could help investors to understand the technological risks associated with cryptocurrencies and make informed decisions.
- Risk of online fraud and cyber-attacks: Investing in cryptocurrencies introduces another risk, online fraud. Hacking is a significant threat and cyber-attacks are becoming more common. A single cyber-attack could result in losses for investors who have invested in cryptocurrencies. Authorities can put in place regulations to help cryptocurrency investors protect their assets. In addition, investors can address concerns or reclaim investments if they lose them.
- Money laundering: Any unregulated system has the potential to fund criminal activities. As a result, similar to a bank, a client due diligence process is necessary. This can aid in tracking down investors’ true identities and verifying their locations when buying or selling cryptocurrencies. Any violation of such standards should result in severe penalties.
A New Standard in Cryptocurrency
This outlines my views on the need for crypto regulation; why it is required, where it should be targeted, and why it can be good for the industry if done collaboratively and well.
This ethos is at the heart of my cryptocurrency community Moni Talks, which puts users, responsible trading, education, and freely available information and data at the heart of everything it does.
