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The growth of the cryptocurrency market over the past ten years has been explosive. The speed, ferocity and rapid maturity of cryptocurrencies are seen by some as an avenue for illegal activity, an idea that has been quickly suppressed due to the presence of cryptocurrency regulation that exists today.
However, many parties still view electronic currencies and the venues where they are traded as financial “The wild west” – areas affected by the spread of practices such as money laundering and terrorist financing. This is partly due to the belief that cryptocurrency companies do not want regulation in the sense that it will harm the freedom present in cryptocurrency markets. This is also overrated
In this blog post, we’ll explore what to expect from the future of cryptocurrency and blockchain regulation. You can jump to sections using the links below.
- Attitudes towards cryptocurrency
- Cryptocurrency and blockchain regulation in the future
Attitudes towards cryptocurrency
The cryptocurrency business is not universally opposed to regulation of cryptocurrency markets. While it is natural that some parties will see them as limiting the financial freedom expressed in these places, most organizations believe that more challenges arise from the lack of regulation in certain exchanges and jurisdictions.
One of the initial challenges for cryptocurrency businesses is avoiding the idea that cryptocurrency is a risky investment area. Crypto is not the dangerous place it used to be. Take Bitcoin for example. today, less than 1% of all Bitcoin transactions can be classified as illegal. unfortunately, many banks are still not in favor of cryptocurrency and refuse to grant bank accounts to cryptocurrency companies.
Hopefully, as more regulations are introduced, banks will become more accommodating, as was the case with JP Morgan Chase. This has been the case over the past few years as relations have heated up as national governing bodies have begun drafting regulations for cryptocurrencies. For example, it was recently announced that in the US, the use of cryptocurrencies will be centralized by legislation.
In addition, the popularity of the use of cryptocurrencies and the warming of the relationship between technology and banks will be influenced by political approaches. To use the US as an example again, current Treasury Secretary Janet Yellen is speculated to ‘strengthen regulations that prevent unauthorized use‘ cryptocurrencies. You can read about the potential impact of the Biden administration on cryptocurrencies at our blog post here.
Much of the current attitude toward cryptocurrencies stems from regulatory concerns. Although these will vary around the world, there are a number of common considerations. The first is transparency.
As fiat currency moves through economies in various forms – credit, debt, e-commerce – it is visible. When cryptocurrency is transacted on the blockchain, it is inherently pseudonymous, requiring the work of blockchain analytics to accurately track transactions and match them with wallet owners.
Second, regulators struggle with localizing regulations and tracking assets. Digital assets are, by their very nature, borderless, which makes it much more difficult for regulatory bodies to enforce regulations on these systems. A third concern is the obvious threat that cryptocurrencies pose to traditional financial systems that rely on fiat currency.
The key thing to remember is that increased regulation can actually alleviate these concerns. With more regulation comes greater transparency, greater ability to enforce rules in defined jurisdictions, and certainty that cryptocurrency is used in tandem with fiat in a way that poses no risk to any party involved.
Cryptocurrency and blockchain regulation in the future
In a The New York Times article entitled What’s next for crypto regulationTimothy Massad, former chairman of the Commodity Futures Trading Commission, says: “The fundamental, overarching issue is that digital asset innovation has outstripped our regulatory framework.” Massad highlights a key focus and challenge for the world’s governments – that cryptocurrencies, blockchain and other fintech innovations are developing much faster than governments can regulate.
The approach of the competent authorities will depend on how cryptoassets and their use develop over time and requires analysis of both users and the global cryptoeconomy. At the moment, the use of cryptoassets and its regulation are not universal, and some jurisdictions require more AML and KYC compliance than others.
For example, in the US, the Department of Justice, the SEC, and the CFTC are collaborating to determine what future cryptocurrency regulations should be implemented to protect consumers. In the EU, cryptocurrencies are now controlled by 5MLD in an effort to fight money laundering and terrorist financing.
It’s a polarizing debate, with many arguing that too much regulation will kill cryptocurrencies. In contrast, many think that regulation is the only way to legitimize cryptocurrency as a medium of value or payment method.
Regulation of cryptoassets will also be affected by market stability. Since some currencies can rise and fall in value seemingly on a whim, this volatility can deter investors and financial institutions from making efforts to join the market. Because of this, we can find that cryptocurrency is still loosely regulated for a few more years. There is also the issue of completely different approaches to regulation around the world, which can lead to some areas becoming havens and other areas off-limits to users and owners of cryptoassets.
While many believe that cryptocurrencies are inherently unregulated systems, or should be, due to the lack of ties to states, governments or bodies, there is always the realization that cryptocurrencies will always be subject to some jurisdiction, regardless of whether that jurisdiction is yet introduced laws on the system.
Cryptocurrencies rely on users and investors, all of whom are located in physical locations. It doesn’t take much for governments to focus on cryptocurrencies and make changes that effectively regulate or even ban the use of cryptoassets. While nothing is certain, it is only a matter of time before more and more interested parties influence the global crypto-economy in such a way that it is almost unrecognizable from what it was five or ten years ago.
To explore more information on cryptocurrency regulation around the world, download our latest guide.
Regulation of cryptocurrencies around the world
For cryptocurrency companies and financial institutions, regulation and compliance are consistent high-level considerations. Around the world, regulation is not universal. It is highly variable, with some jurisdictions enforcing strict rules and others relatively lax. As cryptocurrency is a very new market, the impact and opportunity it can create is still being assessed.
In our guide, you’ll discover the different degrees of cryptocurrency regulation present around the world, with insights into cryptocurrency exchanges, AML and KYC, and tax considerations.
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2023 Regulatory Outlook Report
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