Lawmakers in the United States have been trying to navigate the challenges of crypto regulation for a while now. The cryptocurrency industry, which is worth more than $2 trillion, was free of oversight for years. But senior experts, from SEC Chair Gensler Gary to Treasure Secretary Janet Yellen, believe that more regulation is needed in the industry.
Meanwhile, long-standing crypto traders and investors hope stricter regulation isn’t passed since it could cripple the burgeoning industry.
Why more regulation is needed
1. Experts believe it could protect investors
The crypto industry is rife with scams, and, unfortunately, there aren’t a lot of rules in place to stop insider trading or market manipulation. And there are other risks that many investors don’t consider. For instance, if you put your savings into a crypto wallet that isn’t secure, how can you be sure your money will remain safe? Even if the platform itself is protected, what will you do if the company running it goes bankrupt? More regulation will address these issues.
2. It could have an impact on the economy
Stablecoins, i.e., cryptos that link their value to other commodities like the U.S. dollar or gold, may substantially impact the broader economy. While there are various types of stablecoins, there’s one that has investors worried: fiat-backed stablecoins. These cryptos are pegged to world currencies like the dollar. The problem is that they aren’t backed 1:1 by tangible assets that are held in reserve. If there is a run on a fiat-backed stablecoin, investors may, unfortunately, be unable to access their money. What’s more, it could impact the stability of the credit market.
3. To prevent money laundering
Any unregulated financial market has the ability to fund criminal activity. Crypto experts often claim that money laundering with cryptocurrencies is ineffective, risky, and complex. But the fact is that cryptocurrencies have become extremely popular over the last few years, and many large corporates are now accepting them for payments. As cryptos become more and more mainstream, criminals may identify loopholes that enable them to use these currencies to launder money.
Why crypto enthusiasts are anti-regulation
1. Regulation goes against the decentralized nature of cryptos
The crypto industry’s primary ethos has been decentralization, which involves cutting out big financial players like governments and banks. By doing this, cryptocurrencies empower people to manage their own money without having to answer to an authority or having a financial body watching over their shoulders. Cryptocurrencies aim to take away such power from big corporations and financial institutions, but this would eventually be lost if there was more regulation.
2. It will bring down the price of cryptos
Although it doesn’t seem like the United States will completely ban cryptocurrencies as China did, experts are of the opinion that stricter regulation will cause prices to come down – at least in the short term. This is because the very mention of regulation has become something to fear in crypto circles. Given this, even rumors of regulatory moves can cause prices of crypto coins to drop significantly. That said, it’s worth mentioning that many experts argue that regulation will have a positive impact on prices in the long run.
