Regulations Won’t Harm Cryptocurrency: This is Why

By  //  July 9, 2021

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On April 14, the Chairman of Securities and Exchange commissions (SEC) left crypto investors weary with worry. He seemed to suggest that heightened regulation on digital currency can hurt crypto prices, trading volumes and extinguish innovation from this budding sector. In his view, this would also make crypto investors move to jurisdictions with no strict regulations.

However, investors have no reason to worry since regulations will only act as a strength to the industry by ensuring that bad actors are eliminated.

The regulations are essential for investor protection. This would, in turn, produce trust that can help the industry grow. The bitcoin market cap grew by 300% in 2020. Kevin Werbach and Brian Feinstein, professors of Wharton Business Ethics and Legal Studies, shared the latter view. 

As for the SEC, the Chairman has promised that it will try to provide clarity and guidance on how regulators should handle regulations of the crypto market. However, investors in the US can expect to see enforcement of securities law with investor protection measures. 

Reasons Why Regulation Is Good for the Cryptocurrency Market

The Wharton professors made some exciting findings in a study on how regulations would affect cryptocurrency.

Investors are not Alarmed by Regulation

Through a study conducted by Werbach and Feinstein, it is clear that there is no price decline in countries where cryptocurrency regulation has been enforced.

The studies were conducted on markets in the days following a significant regulation announcement or enforcement. When a government or authority has imposed stringent regulation targeting other money markets with anti-fraud and anti-money laundering, there was little to no impact on trader activities in the markets. 

However, in some countries like Finland,  although the Finland Supervisory Authority (Fin-FSA) supervises virtual currency, regulations don’t offer investor protection.

The Finnish government regards crypto exchange operations as private contracts and imposes high capital gains tax. Notably, registering a cryptocurrency exchange license is unregulated, but all issues related to crypto exchanges are under the Fin-FSA. 

Some crypto enthusiasts feel like strict regulation causes investors to move their trade offshore. But according to Feinstein, investors and crypto traders don’t flee when a country imposes strict crypto regulations.

Regulations are Good for Business

When regulators warn off illicit cryptocurrency dealers and traders, they provide a safe environment for genuine investors. Regulations only scare those interested in using cryptocurrency for money laundering or other illegal money activities, including crypto investment fraud. Another group of traders that welcome regulations are investment firms. They are quite comfortable with regulations because it pushes out all bad actors. 

A Look at the Future

There is bound to be a difference between how the US takes on regulation and other countries. Some countries will move toward investor interests while others will move towards securities regulation. Others still may ban private cryptocurrencies altogether to create a national digital currency controlled by the central banks. 

As for the US, the regulations seem to point at enforcing regulations that create trust in investors. By now, up to over 30% of stakeholders think regulation would be good. The focus is more on investor protection measures, cybersecurity, and anti-fraud issues.

Feinstein feels that regulators should emphasize regulations that increase investor trust in their countries rather than encouraging offshore trading.