Why We Want To Regulate Crypto Currencies?
The eventful year 2019 in cryptocurrencies ended with the passage of a federal law defining the categories of cryptocurrencies and the federal regulators that can regulate them. The amendment introduces a new category of “crypto-assets” to be used instead, which will further limit the ability of users to manage their virtual money and limit their ability to trade and trade crypto-derivatives. It stipulates that cryptocurrencies such as Ethereum should be regulated as securities. [Sources: 1, 9, 16]
Anyone who takes the time to review the law will look in vain for any mention of FinCEN, which regulates US dollars or virtual currencies. From the outset, regulators have made it clear that what is simply called “cryptocurrency” or “virtual currency” (or simply “digital money”) is not the same as a currency, or even a virtual currency in the traditional sense. It states that cryptocurrencies should not be considered part of a “branch network” and are exempt from the rules on the transfer of foreign currencies. [Sources: 1, 14, 15]
To give comfort to banks, the government and the RBI could pass a law requiring cryptocurrency exchanges to conduct checks between their end customers and holders of cryptocurrencies. There are major concerns about unregulated cryptocurrencies, which the central bank has addressed but not fully addressed. Regulation can help establish cryptocurrencies as a legitimate currency, which would be a big step toward mainstream adoption. But, as far as these and other steps are helpful, they should not lose power to regulate the financial system, even though competing government currencies have already become digital and cryptocurrencies will be based around the world anyway. [Sources: 4, 8, 12, 13]
Overall, classifying cryptocurrencies as foreign currencies solves some of the problems associated with the regulation of virtual currencies today. As the value of cryptocurrencies continues to rise, a cryptocurrency market that is effectively regulated will mean a decline in herd volatility — volatility that excites the market. This will also reduce the massive impact of Bitcoin on markets, as most exchanges currently require traders to hold BTC before they can exchange it for other types of crypto. In the long run, the introduction of cryptocurrency trading as a whole will help, as the ease of joining and acquiring cryptocurrencies will make it easier for newcomers to think outside the box, rather than thinking in ever-fluctuating bitcoin terms. [Sources: 6, 11, 19]
Other countries have already opposed it, and while the United States does not appear to be making significant changes to existing regulatory systems, other leading countries, such as China and India, are adopting a new view of cryptocurrencies, even though there is no regulatory system. China has banned the exchange of cryptocurrencies, while India has prevented banks from trading with anyone using cryptocurrencies. Since China banned ICOs, it has kicked out bitcoin miners, ordered account freezes related to exchanges, and imposed a ban on all things related to cryptocurrency trading. [Sources: 0, 2, 12]
Hoping that the free market would help create jobs, lawmakers exempted cryptocurrencies from government regulations on financial securities as long as the currency was not sold as an investment. The SEC’s position is that virtual currencies are classified as securities and that cryptocurrencies must be registered with regulators. It therefore recommends that those investing in cryptocurrency funds comply with the Corporate Law as a preventive measure. [Sources: 7, 10, 14]
According to countries that strictly regulate virtual currencies, the United States should not ban the use of cryptocurrencies. Failure to regulate the cryptocurrency market would not bring the sector to a standstill, but rather drive it underground and revive the government’s fears about the market. Governments should therefore seek to understand the immense potential uses of cryptocurrencies and take the necessary steps not only to regulate the market, but also to impose some form of prohibition. [Sources: 13, 19]
A permanent ban on cryptocurrencies would only reflect the positive impact that technologically powerful cryptocurrencies can have on India’s economy. At the very least, regulating cryptocurrencies would discourage criminals from using them and give them more legitimacy. Even if cryptocurrencies fail the Howey test, applying security laws to the cryptocurrency market would not hurt its growth. [Sources: 4, 13, 17]
While some cryptoinvestors and exchanges welcome regulation because they believe it lends legitimacy to the cryptocurrency, which is often associated with illegal purchases on the darknet, others prefer an unregulated approach. A ban on crypto also makes it less likely that victims of Ponzi schemes will come forward with digital currencies. [Sources: 12, 18]
The argument that advocates make against Bitcoin is that the cryptocurrency market has become very large and powerful, and that banning it would be costly for the country. There is still a possibility that cryptocurrencies such as Bitcoin could lose 20% of their value in just one day. Using Stablecoins allows exchanges to get around this problem by offering crypto-fiat trading pairs simply by using Stablecoin. Supported by USD. Cryptocurrency exchanges make it easy to move dollars into and out of cryptocurrencies, and cryptocurrencies are offered in a variety of currencies including Bitcoin, Ethereum, Litecoin, Ripple, Dash, Zcash, and others. [Sources: 3, 5, 6]
Sources:
[0]: https://www.lexology.com/library/detail.aspx?g=338ff337-3f00-492a-b093-588d12e610fd
[1]: https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-a-crypto-currency-act-of-2020-you-cannot-be-serious
[2]: https://bitcoinmagazine.com/articles/cryptocurrency-regulation-2018-where-world-stands-right-now
[3]: https://www.intechopen.com/books/blockchain-and-cryptocurrencies/blockchain-and-digital-currency-in-the-world-of-finance
[4]: https://losspreventionmedia.com/cryptocurrency-and-asset-protection-why-we-need-regulation/
[5]: https://www.theverge.com/2020/12/22/22195834/cryptocurrency-fincen-regulations-private-wallets
[6]: https://www.cbinsights.com/research/report/what-are-stablecoins/
[7]: https://www.governing.com/archive/gov-bitcoin-regulations-states.html
[8]: https://clsbluesky.law.columbia.edu/2020/02/27/why-cryptocurrencies-should-be-evaluated-as-fiat-money/
[9]: https://www.forbes.com/sites/pawelkuskowski/2018/08/01/why-regulating-cryptocurrencies-as-securities-would-stifle-growth/
[10]: https://www.globallegalinsights.com/practice-areas/blockchain-laws-and-regulations/usa
[11]: https://www.brookings.edu/blog/techtank/2018/10/10/the-future-of-cryptocurrency-regulation/
[12]: https://asia.nikkei.com/Opinion/Governments-should-regulate-not-entirely-ban-cryptocurrencies
[13]: https://yourstory.com/2020/07/government-regulatory-framework-solutions-cryptocurrency
[14]: https://www.bobsguide.com/guide/news/2019/Feb/8/digital-states-cryptocurrency-rules-and-regulations-across-the-us/
[15]: https://www.winston.com/en/crypto-law-corner/when-is-a-crypto-asset-a-security-and-why-does-that-matter-part-i.html
[16]: https://complyadvantage.com/blog/cryptocurrency-regulations-around-world/
[17]: https://www.cato.org/publications/cmfa-briefing-paper/should-cryptocurrencies-be-regulated-securities
[18]: https://www.corporatecomplianceinsights.com/cryptocurrency-difficult-irs-regulate/
[19]: https://ilr.law.uiowa.edu/print/volume-104-issue-2/avoiding-liability-changing-the-regulatory-structure-of-cryptocurrencies-to-better-ensure-legal-use/
