Cryptocurrencies have recorded a tremendous rise in transaction volumes over the last couple of years. However, crypto naysayers have continued to push their negative narratives. Some argue that cryptos are worthless while others maintain that cryptocurrencies like Bitcoin operate in anonymity and cannot be regulated. Jamie Dimon, the CEO of JPMorgan Chase Bank, initially claimed that cryptocurrency is a fraud worse than Tulip bulbs. Contrary to his allegations, the bank later launched its own JPM Coin that runs on blockchain technology.
The series of misconceptions that surround cryptocurrency have hindered the mainstream adoption of this noble innovation. Today, we debunk the myth that cryptos cannot be regulated.
Rapid rise of cryptocurrencies
When Bitcoin came into the limelight in 2009, the primary intention was to provide a fast means of carrying out cross-border transactions without government intrusion. So, the idea of regulation was totally out of the picture. Even governments and other regulatory authorities never paid a lot of attention to the cryptocurrency hype. Today, the cryptocurrency space has grown enormously, with more than 1600 different coins in existence. With trillions of dollars being traded globally and the impressive growth of blockchain technology, there is an increasing awareness by governments and regulators about the need to regulate the crypto market. So, yes, cryptocurrencies can be regulated, but regulators around the world are still divided on the best approach to adopt. Since cryptos do not have the backing of a central authority, each country is forced to develop its own legal framework to regulate the crypto industry.
How are cryptocurrencies regulated?
The increased magnitude of crypto trading has elicited mixed reactions from global regulators and governments in several ways. Every authority is examining different aspects of cryptocurrencies in a bid to come up with modalities to regulate it. However, some countries and jurisdictions still don’t have clear guidelines on how to handle crypto trades. That way, investors operate within a grey area of legislation.
Some of the crypto regulations include:
Trading and mining regulations
There are regulations that govern how digital currencies are traded. Many nations are still debating on how cryptos should be classified. Should they be considered as commodities or securities? The regulatory status will depend on how cryptocurrencies are classified in your country.
Crypto mining is another area of contention that regulators still debate on. Mining simply refers to the process of validating transactions on the blockchain ledger. It involves bringing new coins into the market. Miners use powerful, tailor-made computer systems that utilize a lot of electricity. Some governments like China actually banned cryptocurrencies due to such hiccups.
In countries like Australia, cryptocurrencies are viewed as commodities, meaning that they are business assets that are subject to taxation.
ICO and crowdfunding regulations
Initial coin offerings (ICOs) have proliferated the crypto world over the last few years. It’s a quick means of raising funds for companies through the issuance of new cyber tokens in exchange for cryptos like Bitcoin or Ether. Owing to the myriad of scams that surrounded ICOs, there is every need to regulate crowdfunding through ICOs. In most nations, ICOs are run within a grey area, but many of them now see the importance of regulating the sector. Russia and Japan are some of the countries who have introduced rules to clamp down money laundering while shutting off illicit trades.
Money laundering regulations
One issue that keeps cropping up in the cryptocurrency sphere is money laundering. The extent of the menace is, however, not clear. While some jurisdictions have imposed regulations like counter-terrorism financing (CTF) and anti-money laundering (AML) on exchanges trading cryptos, others only implement AML voluntarily.
The rapidly evolving market requires extensive bodies of research and trusted information providers to effectively eliminate money laundering. However, many regulators are now learning how the blockchain technology works in a bid to design auditing software solutions for blockchain networks. Money laundering is actually very unlikely with cryptos since all transactions are permanently recorded on searchable, immutable ledgers.
Financial derivatives regulation
As cryptocurrencies gain traction, experienced traders and professional investors are exploring ways to enter the space. However, the perceived risks associated with cryptos often put them off. Consequently, there is a new push to create regulated financial derivatives of cryptocurrencies to enhance security. The Chicago Board Options Exchange (CBOE) and the Chicago Mercantile Exchange (CME) are now promising cryptos in the US. They have leveraged the power of Contracts for Difference (CFDs) to create opportunities for a wide range of investors in this area.
Taxation is another reason why governments have moved in to regulate cryptocurrencies. The biggest challenge is usually on how to categorize cryptos. Various activities around cryptos like buying, selling, mining, or receiving coins as gifts all affect how cryptos are taxed. In the US, the IRS considers gains made from selling cryptos as capital gains. Therefore, they are subjected to capital gains tax.
There are several misunderstandings, misconceptions, and false claims spread around by critics who think that the technology won’t stand the test of time. However, in virtually every myth, you will find evidence of bias, intellectual laziness, or both. You only need to dig beneath the surface to unearth the truth. This, however, doesn’t mean that blockchain and cryptocurrency have resolved all the challenges that come with regulation. One thing you can be sure of is that the technology is here to stay even as regulators rush to develop suitable legislative frameworks.