How Government Regulations Around the World Will Affect the Cryptocurrency Market?
Over the years, the cryptocurrency market has boomed all around the globe, attracting millions of investors. Even though, with every passing day cryptocurrency is becoming highly popular among people, the uncertainty of its future remains.
The significant factor contributing to this uncertainty is how governments regulate this digital asset class worldwide. The regulation of governments can have a huge impact on the future of the cryptocurrency market. In this blog, let us explore the breakdown of how regulations might affect the crypto market;
1. Increased Legitimacy & Stability
Once governments worldwide create clear cryptocurrency regulations, all crypto businesses will obtain a legal framework to operate which will foster trust and attract investors. Regulations will also help governments combat illegal activities associated with cryptocurrencies such as financing terrorism and money laundering.
This increased legitimacy will lead to more stability in the crypto market, reducing its price volatility which is usually a major turn-off for many potential investors. Overall, implementing regulations over crypto assets will improve the perception of crypto and make it an attractive investment option.
2. Potential for Stifled Innovation
Though regulations imposed by governments can bring stability to the digital asset market, they can also lead to stifled growth. If the governments end up putting overly restrictive regulations, stringent licensing requirements, or limitations on initial coin offerings (ICOs), this could hinder the development. All the strict crypto regulations will lead to hindered growth of new and transformative blockchain-based technologies.
As much as these regulations will aim towards protecting the investors, they might inadvertently limit the choices and access to certain cryptocurrencies that are deemed too risky. This could lead to stifled growth of the crypto market.
3. Rise of Central Bank Digital Currencies (CBDCs)
In future, it is predicted that governments will launch their digital currencies called Central Bank Digital Currencies (CBDCs). These currencies are potentially going to compete with the existing crypto assets which will have a huge impact on market share. However, the launch of CBDCs can also bring legitimization to the concept of digital currencies and digital assets which will broaden the horizons of the cryptocurrency market.
4. A Patchwork of Regulations
As the popularity of cryptocurrency grows, different countries will likely adopt distinct regulatory approaches. This variation will make it difficult for crypto businesses to operate globally thanks to a patchwork of regulations. Uncertainty in regulations around the globe will also lead to discouragement of investments in specific regions leading to fragmented markets.
To avoid this fragmentation, governments must have international cooperation to create a standardized regulatory framework for markets to operate smoothly. Currently, organisations like the Financial Action Task Force (FATF) are working towards establishing global standards for cryptocurrencies to combat financial terrorism occurring through cryptocurrencies.
5. The Evolving Regulatory Landscape
With every passing year, the regulatory landscape surrounding cryptocurrencies is constantly evolving. Many governments like the UK, USA, UAE, Switzerland, Singapore, and Malta have chosen to embrace cryptocurrencies. These governments defined clear regulatory frameworks for the crypto market.
The aim is to provide legal certainty, foster innovation, and attract cryptocurrency businesses. For instance, now many crypto tax firms and crypto startups operate in the UK, USA, and UAE. Furthermore, Switzerland has its Crypto Valley in Zug for blockchain startups due to its favourable crypto regulatory framework.
6. Cautious Regulations
Many governments around the globe acknowledge the potential cryptocurrency holds but also proceed towards it with caution due to its volatile and decentralised nature. Due to this governments seek to balance innovation with investor protection and financial stability.
To combat fraud and illegal activities associated with cryptocurrencies, the European Union, the US, and Japan have applied regulations which typically focus on anti-money laundering (AML), and know-your-customer (KYC) requirements. This gives the government ease of taxation and consumer protection.
Concluding Remarks
Cryptocurrency is undoubtedly the future, but how our governments plan to regulate it will play a pivotal role in forming its future. The regulations can bring both stability and legitimacy but also hinder the growth of the cryptocurrency market because of their restrictive nature.
Governments from around the globe must develop standardised regulations for cryptocurrency to strike the right balance between fostering innovation and mitigation of risks. As the digital asset market expands, it is necessary that stakeholders and potential investors also stay informed and adapt to the changing times.