20 Nov Why the US needs cryptocurrency regulations
Cryptocurrencies have built a reputation in the industry with headlines calling out shady transactions, massive scams, and fraud. But all of the bad press in the US stems from the lack of governance over how cryptocurrency is handled, and it’s time to consider regulation as a form of damage control.
Although founders built digital currencies as an opportunity for risk-takers to explore new ventures in the market, its freedom created a legitimacy problem that only standardized rules can fix. Crypto purists have fought against regulation for years, but they need to consider how it could transform the industry.
Why regulating cryptocurrency is a good thing
Bringing order and structure to crypto validates its presence in the industry, which in turn helps foster business exchanges and partnerships. We’re seeing a current pattern where crypto partnerships gain explosive momentum in the initial stages because of spiking activity from excited investors, but because regulation can’t prevent crypto from being overvalued, investors quickly pull back, causing partnerships to crumble.
Take KODAKCoin, for example. Its value increased by more than 200 percent when Kodak first announced the partnership, but only months later the coin started receiving negative sentiment in the market because of accusations of shady activity, and the venture dissolved. With increased governance, companies can better sustain crypto partnerships by maintaining investors’ trust, allowing crypto startups to see long-term growth.
The crypto market also has new investors to gain by regulating cryptocurrency through opportunities like a coin-based ETF. The SEC is currently reviewing a proposal for a Bitcoin futures ETF with an estimated value between $10 and $15 billion over the next decade. If approved, it could spark mainstream investors to join the crypto game by removing the direct threat of owning actual coins. Crypto exchanges have been searching for ways to bring in new players to the crypto market and being backed by regulators would certainly help drive interest.
In addition to benefiting crypto exchanges and players, increased regulation could also improve the US economy. Experts have warned the industry about a “chilling effect” on US innovation because of crypto founders taking their business overseas to countries that welcome crypto opportunities, avoiding the fines and penalties the Securities and Exchange Commission could impose for misinterpreting laws.
According to TradingView user data, South Korea is one of the top sources of visitors looking at cryptocurrency charts on its site. More than likely, this is a result of South Korea’s Supreme Court recently ruling bitcoin as a legally recognizable asset. If the US government doesn’t solve crypto’s regulation problems soon, it will fall behind in the global markets.
As the reputation of digital coins progressively worsens, crypto leaders have opened up to the idea of bringing more structure to how their business is governed. But even with the backing of crypto exchanges, establishing new regulation could take years. How can the industry fast-track the path to legitimacy?
What it will take to regulate cryptocurrency
Although regulation is in the hands of US agencies, crypto founders and leaders need to take a proactive stance and demand governing bodies to clarify the rules. Initiatives like the closed-door meeting Nasdaq hosted to discuss advocacy strategies with other exchanges creates momentum and sets off ripple effects. It led to a roundtable meeting on Capitol Hill a few months later where crypto leaders raised their concerns to Congress about the unresolved discrepancies in regulation from the SEC.
By voicing their complaints to regulators and rallying support from the industry, cryptocurrencies will raise the demand for better governance, forcing government agencies to sit down and make decisions on how to regulate digital coins.
Before the technology is completely removed from the US market for its rigged practices, the industry needs to take a stance on increasing regulation. Until crypto players realize they’re on the same team as regulators, crypto’s power will continue to lose its potential.
“We all want fair and orderly markets, we want all the same things regulators do,” Mike Lempres, chief policy officer at Coinbase, told CNBC. “It doesn’t have to be done in the same way it was done in the past, and we need to be open to that.”
Guest post by Andrew Kirillov, CFO of TradingView