As a relatively new financial market, the regulations surrounding cryptocurrency are not universal, and governments frequently alter them. According to Security.org's crypto consumer report, 44% of people believe government regulation will destroy crypto's purpose.
It's clear that many figures involved with crypto are against increased government oversight, but could tighter regulations actually enhance the crypto space? Let's dive deeper.
The Current Regulatory Landscape
People who invest in digital assets, trade Contracts For Difference, or a CFD online are subject to strict regulations that impact how they can trade and brokers' information-gathering requirements. While platforms regulated by local authorities like the UK's Financial Conduct Authority have to comply with regional rules (meaning certain features must be geo-restricted), they are typically required to offer enhanced user protections, like eliminating hidden fees and client balance insurance.
For example, the FCA has banned crypto futures products and restricted margin limits to just 2:1 for cryptocurrencies, significantly impacting how people trade the asset class. However, the regulator oversees how platforms operate, ensuring transparency and a high standard of service.
Geographical restrictions are a significant hurdle along the path to regulation. Some countries have opposing views on how crypto should be regulated, leading to dichotomy and causing confusion among retail traders trying to navigate local rules and restrictions.
Unfortunately, there is no universal consensus on how best to tackle crypto regulation. While China has outright banned crypto due to stability concerns, Donald Trump started his presidency with a greater focus on the asset class than his predecessor, indicating a positive interest in the space.
How Crypto Regulations are Changing
Crypto regulations are constantly changing as governments iterate on their attempts to manage the market. Although some efforts are being made to incentivise crypto ownership and development, most regulators seem set on increasing oversight and information-gathering requirements.
The European Union recently approved the Markets in Crypto Assets (MiCA) framework, which regulates how cryptocurrencies are issued and transferred. People have to report where or to whom they send crypto, and brokers/exchanges must track withdrawals and profits.
Although some critics oppose these regulations, most governments are focusing on enhancing transparency and accountability, which are lacking in the crypto market. As such, these stricter regulations could even positively impact the industry.
Enhanced Regulatory Control Could Boost the Crypto Market
Enhanced regulatory control should lead to greater transparency. There will be stricter rules surrounding token sales, and additional information gathering will make it harder to cash out or launder ill-gotten funds, combating bad actors and improving the public's perception of crypto.
Financial institutions are governed by rules designed to protect investors. They must be transparent regarding products and face restrictions on the assets they can offer. However, clearer regulations may enable institutions like banks or investment firms to begin offering crypto assets.
Crypto regulations are getting tougher, and some people fear the impact they could have on the market. However, stricter regulations could benefit the entire crypto market by fostering transparency and enabling institutional investment, dramatically boosting crypto asset demand.
The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and, as such, is to be considered to be a marketing communication.
All information has been prepared by ActivTrades ("AT"). The information does not contain a record of AT's prices, or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information.
Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of future performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at their own risk.
CAclubindia
