The fast-paced world of blockchain technology gives a hard time to regulatory authorities. They continuously strive to keep pace with new advancements.
At this point of time, most of us aren’t even sure what’s behind cryptocurrency regulation. One thing is clear though, the top ten cryptocurrencies account for 10% of the total market value, which clearly showcases their impact in the financial landscape.
We can’t quite put a finger on it, but there’s definitely something fuzzy about cryptocurrency regulation. If you’re interested to enter the world of cryptocurrencies, then you’re up for a time-worthy challenge.
No need to worry, as today we’ll go through every aspect of the ever-evolving landscape of cryptocurrency regulation.
Let’s dive in!
Why cryptocurrency regulation is important
The whole logic behind cryptocurrencies is based on their decentralized nature. So, basically, they don’t need an intermediary to operate. However, without defined regulation, things can quickly get out of control.
Decentralization is awesome but it can lead to potential risks and abuses. If there’s nobody to oversee cryptocurrency transactions, the cryptocurrency ecosystem can easily become a breeding ground for fraudulent activities. Here are some of the things in which crypto regulation comes in handy:
- Consumer protection. Buying and selling crypto is indeed straightforward. But how can we completely rely on the system without proper regulation in place? We’re talking about people’s money and personal information, which are most often the reason behind fraudulent activities.
And let’s forget the volatility of cryptocurrencies. It’s the one thing that can burn you but can also lead to incredible money opportunities. Exposing your money to extreme volatility is risky and is not for the faint-hearted. However, it can be controlled to some extent with proper regulation.
- Investor protection. Investing in cryptocurrencies has been a thing for many years now. While we’ve heard life-changing stories of investors making significant profits, we often fail to mention instances of losses and scams. Such an example is the OneCoin scam of 2016 when investors were scammed out of $4 billion.
- Financial stability. If there were rules, regulators could actually keep an eye on potential risks and timely prevent them. Plus, most of the cryptocurrency buyers are millennials, as older generations often feel skeptical toward digital advancements. But if they actually see clear rules, then they’ll be more eager to jump in and try it out.
To put it in a nutshell, it’s crucial to recognize the need for proper cryptocurrency regulation. What we can expect are even more benefits – managing volatility risk, protecting costumers and investors, and hopefully prevent any potential malicious activities.
Cryptocurrency regulatory challenges
It’s not like crypto regulation is overlooked. It’s just quite challenging. For years, regulatory authorities have been working on developing regulatory frameworks and guidelines but the thing is, the crypto landscape is constantly evolving. Next, we’ll take a look at some of the challenges regulators face.
Fast technology advancement
You know, technology is growing incredibly fast these days. In fact, processing capacity doubles every eighteen months. And one more mind-blowing stat – over 85% of Big Data has been generated in just the past two years.
So, how are regulators supposed to keep up if the cryptocurrency landscape is constantly evolving? It’s like chasing a moving target. We live in a tech-driven world, and as soon as we think we understand one aspect of cryptocurrencies, new technologies, and innovations come our way.
Tax compliance and token compensation
According to the Internal Revenue Service (IRS) Notice 2014-21, cryptocurrencies are considered property, and any crypto profits are taxable. To put it in a nutshell, crypto transactions are subject to capital gains tax, while activities such as mining, staking, and NFT minting fall under income tax.
Every person that engages in should accurately report their crypto transactions, to make sure they’re tax compliant with token compensation requirements. That way, you can avoid possible penalties and audits.
However, the IRS overlooks the complexities of DeFi transactions. For now, there are only general rules that surround crypto transactions but these do not specifically address the implications of DeFi.
So you can see how confusing it can get to determine the exact tax implications when it comes to DeFi. Plus, DeFi’s protocols are still relatively new and regulators will need time to adapt to these changes. At least until another growing technology comes into the picture.
A thin line between regulatory development in low-and middle-income countries
Low- and middle-income countries will find it harder to navigate the challenges of crypto regulations. Why? Due to limited resources and expertise. At this point, 45 countries have implemented cryptocurrency regulation in their jurisdiction – only 11% out of the middle-income countries and none of the low-income countries.
The imbalance in regulatory development poses a unique challenge for international financial institutions. A lot of work will have to be put toward supporting low-and-middle-income countries to address this issue.
Asset tracing and recovery
We know that cryptocurrencies promote transparency. However, when it comes to tracing and recovering assets in cases of fraud or theft, institutions probably don’t even know where to begin. Their decentralized nature makes it difficult to trace any malicious activity.
And not to mention cases when companies decide to store their assets in private addresses, known as cold wallets. This is a whole other level of decentralized security. These wallets are practically impossible to trace and penetrate.
If we imagine a scenario where the cold wallet owner passes away, it’ll be impossible to recover the funds, even if we’re talking about their family members. One possible solution is to establish transparent corporate governance regulations that limit the CEO or other officers’ exclusive control over a company’s crypto funds.
2023 trends in cryptocurrency regulation
As the crypto industry continues to grow, so does the need for crypto regulations. We’re already in the second quarter of 2023 and it’s clear that cryptocurrency regulation is still a hot topic for discussion. Below listed are some of the cryptocurrency regulation trends you should an eye on in 2023.
IOSCO drives global cryptocurrency regulation initiatives
When it comes to global cryptocurrency regulation, the International Organization of Securities Commissions (IOSCO) is taking the lead. The organization is actively driving initiatives for comprehensive guidelines for cryptocurrency regulations all over the world.
According to Ashley Alder, the chair of IOSCO, digital currencies like Bitcoin have caught the attention of regulatory bodies. The hype around global cryptocurrency will be one of the three main areas they’ll be focusing on during 2023.
Alder is very much aware there are many challenges on their way and many issues to be addressed. But as we would all agree – it’s about time to do something regarding cryptocurrency regulations.
More institutional investors embrace crypto investments
Cryptocurrencies have made a boom in the financial landscape. They started off small but have quickly become a global sensation.
Individuals looking to make a second income have put cryptocurrencies on top of their list. But now, institutional investors are also turning toward crypto investments. Since institutional investors manage large pools of money, their interest in cryptocurrencies will make a significant impact on cryptocurrency regulations.
Web3 integration set to expand into luxury businesses
Web3 is technically here and is now set to make changes in luxury businesses. Let’s take luxury properties as an example. Whether you’re looking to buy or sell a property, you’ll get to do it in a matter of minutes. No need to worry about additional fees and intermediaries – it’ll all be a thing of the past.
However, Web3 isn’t as widely adopted as Web2. Even though many luxury brands such as Givenchy, Dior, Nike, and Louis Vuitton have embraced the metaverse, we all need time to adapt to these changes, including regulators.
Cryptocurrency bans aren’t the solution
Banning cryptocurrencies isn’t the solution to address the regulatory challenges they pose. It might seem like a straightforward approach but the benefits of cryptocurrencies should also be considered before deciding on those steps.
Instead of banning them, cryptocurrency regulation approaches can be explored. If proper regulation is established, cryptocurrencies might reach a wider adoption and Web3 can become an integral part of our everyday lives.
The future of crypto regulation
As more people are becoming familiar with blockchain technology and cryptocurrencies, it’ll be inevitable for governments and regulatory bodies to come up with regulatory solutions. We’re all becoming aware of the impact and benefits of cryptocurrencies in the financial landscape – and hope to legally use them to our advantage.
While there aren’t proper regulations in place, you can still take some measures to protect yourself. The future is unpredictable and cryptos are a true example of that. Stay informed about the latest developments, as well as the potential risks of crypto, As for proper regulations – they’ll hopefully be established.
Makedonka Micajkova is a freelance content writer and translator, always bringing creativity and originality to the table. Being multilingual with professional proficiency in English, German and Spanish, it’s needless to say that languages are her biggest passion in life. She is also a skilled communicator, as a result of having three years of experience as a sales representative. You can find her on Linkedin.