The pros and cons of cryptocurrency regulation
The regulation of cryptocurrencies is a sensitive topic and there are many people who do not like the idea. For some, this goes against the purpose of having a decentralized currency held by the people. For others, regulation increases the perception of security because they know they are trading in a more controlled environment.
In order for you to better understand both sides, let’s look at the pros and cons of cryptocurrency regulation.
Let's start with the biggest downside of regulation. The main reason most people are against regulation of cryptocurrencies is the problem of decentralization . A lot of people enter the crypto world mainly because aspects like supply, control and regulation are not in the hands of any government. Once there is regulation, that should change, which many investors don't like.
Cryptocurrencies like Bitcoin were created so that people can take charge of their own finances, participate in transactions previously inaccessible to them, and achieve the financial freedom they have always wanted. Although there is the possibility that this regulation does not affect these aspects at all, this is the first thing that comes to mind when we think about regulatory situations.
That said, let’s look at some of the advantages that can put an end to the fear of this preconceived notion of cryptocurrency regulation.
This type of regulation has three main advantages, the first – and probably the most important – being a safer trading environment . Regulating cryptocurrencies like Bitcoin can make the market much safer, end market manipulation, protect investors, and provide an overall safer environment for everyone. This makes a huge difference for investors, as with the right regulations, anyone can get their own secure Bitcoin wallet and start trading without any major worries.
The other benefit is more stability . With regulatory guidance, people who trade regularly will be able to learn more easily. In addition, a more regulated environment can reduce the effects of uncertainty and speculation, allowing markets to maintain volume.
Last but not least, there would be more trust . With a more secure and stable trading environment, Bitcoin could increase in value over time as prices would be less affected by external influences.
Countries that already have regulations on cryptocurrencies
Each country will adopt different regulations on cryptocurrencies, depending on how they view this universe in general. To get an idea of how regulations might affect the cryptocurrency market, we can consider some of the countries that have already implemented them and how this is affecting trading activities. Here are some examples:
United States
As the United States adopts a federal system, each state regulates cryptocurrencies differently. For example, in 2016, the state of New York took a stand on cryptocurrencies and launched a licensing framework called BitLicense . This made it possible for companies and exchanges to deal with cryptocurrencies. In 2018, the state of Wyoming exempted cryptocurrency developers from securities legislation as long as they meet certain requirements. Many states such as Florida have followed suit, while others have yet to take any position.
El Salvador
In 2021, El Salvador began to accept Bitcoin as legal tender in the country. Nayib Bukele, the country's president, claimed that this could reduce poverty and bring digitization to more citizens.
China
China was one of the countries that most supported Bitcoin, but it started to repress it. Today, the Asian giant has banned all mining and trading activities in hopes of launching its own cryptocurrency in the future.
How Regulations Can Affect the Price of Bitcoin
If you wonder how cryptocurrency regulation can affect its price, know that you are not alone. A lot of people ask the same question, and the answer is a little complicated.
Generally speaking, there can be a correlation between regulations and the price of Bitcoin. For example, if a country takes a negative view of Bitcoin and bans its use, it could lead to a drop in price. But the same goes for the opposite case: if a country accepted Bitcoin with open arms, its price could go up.
We could also consider more deeply how specific government actions might actually affect the price. For example, they can regulate the price by implementing buy and sell rules. They can also hamper cryptocurrency companies with regulations increasing the cost of their activities.
But it can be difficult to impose these rules on a cryptocurrency like Bitcoin, as it has a decentralized ledger that covers several countries, meaning its regulation would require a multinational effort from several economies. What further increases this difficulty is that countries see the issue in different ways, as we have already mentioned.
Regulation is not inherently good or bad
The important thing to understand about cryptocurrency regulation is that it will always be different in each country . If you consider the examples presented, you will see that each country regulates cryptocurrencies in a very different way: the United States allows each state to adopt its own approach, El Salvador has fully accepted Bitcoin, and China has banned its use. Fundamentally, this means that regulating cryptocurrencies is not an inherently good or bad thing. It all depends on how each country sees this space.
Before putting your money in Bitcoin or any other cryptocurrency, read up on how your country views these assets and if there are already regulations on this market. In that case, reading a little can save you a lot of time and money.
