Unlike the fazed 2017 market drop, the crypto market currently represents heavy institutional interest despite the recent crash. Rallying all the way to $60k, Bitcoin surpassed its previous all-time-high this year. With most assets, traditional and crypto concluding 2020 on a more than positive note, cryptocurrencies came through victoriously. While the market historically rings with fluctuations and heavy volatility through most of its journey, the community sticks to its undying faith in its inevitable success. However, in an unfortunate turn of events, the crypto market massively lacks regulatory support from the majority of the world’s economies.
Over the years, from criticism to massive adoption and expansion, the crypto space has seen fluctuations in both opinions and on the charts. Regulators in the US, for instance, have spoken out for and against crypto and are slowly etching towards understanding the need for viable and competent regulations over cryptocurrencies. However, crypto proponents have previously expressed their fear of a community-wide spook in lieu of crypto regulations, driving the prices down and users away.
Earlier in April 2021, Gary Gensler, Chairman of the Securities and Exchange Commission, sparked fear over increased regulations on cryptocurrencies and their impact on trading volume, price, and attenuated innovation in the evolving crypto space. While crypto regulations are easier addressed than done, their need is prominent in the industry. The fear instigated over the regulatory framework is quite unfounded and, in lieu of recent events with the Chinese crackdown, dictates its probable ineffective impact on trading volumes.
Furthermore, tighter regulations can help the crypto market disconnect from illicit activities and entrust the network with trust, promoting further growth and advancement in innovation around cryptocurrencies. Gensler has previously described cryptocurrencies as “catalysts for change” and cryptocurrencies visibly hold the potential to reshape the current finance system for the better. Regulations around cryptocurrencies have evolved impeccably over the past year, with leading economies like the USA, Japan, India, UK, etc. now experimenting with their own central bank digital currency (CBDC).
Although, it is important to consider the possibility that cryptocurrencies may not face the same fate as CBDCs. However, it’s important to understand the horrendous effects that will follow in with the regulatory absence or uncertainty.
Designing an optimal regulatory framework is more complicated than it sounds. Given the global impact on the cryptocurrency market, regulations designed country-wise would be a serious challenge. However, given the uncertainty that stems from the lack of regulatory support creates unnecessary friction and user disconnect in the market. A regulated market would create a domino effect that would elevate innovation and growth across industries.
Regulations designed with care would dismiss uncertainty throughout a nationwide arena. Doubts surrounding digital currencies discourage investors from getting involved with the assets. For cryptocurrencies to potentially reshape the sectors altogether, regulatory compliance is a rising issue between developers and investors, creating a hindrance in the flow of money required for the consistent advancement of revolutionary technology.
Increasing investor interest in cryptocurrencies would drive the sector towards unmatched innovation. Developers behind the projects would benefit from the flow of money and bolster innovation in their work. A sturdy inflow of funds would further culminate a smooth path for various funding methods to be carried out unstrained such as venture capital rounds and initial coin offerings, invoking innovation to its best. Not to mention, projects would come in abundance as developers feel free to pursue multiple projects with a strong monetary back.
Along with cryptocurrencies, CBDCs have become a hot topic of discussion among nations to cope with racing adoption. While also leading a massive crackdown on mining this year, China also released the whitepaper for its digital yuan. In an attempt to match the Asian leader’s rushing steps with CBDCs, Economies around the globe feel threatened to be left behind.
However, despite China's palpable and sudden distaste for cryptocurrencies, other countries including Japan, India, the USA, etc. are taking calculated steps with the development of their own digital currency and where they stand on cryptocurrencies. Earlier this year, India’s Minister of Finance Nirmala Sitharaman mentioned their “calibrated stance” around cryptocurrency and keeping a window open for experimentation. Similarly, Japan has delayed the second phase of its digital currency until next year, taking the time to observe, study, and research cryptocurrencies and Defi for a calculated decision.
As for the dark side of regulations, the fear is unfounded. China’s recent crackdown is proof enough that even a mining ban like that doesn't dictate the future of crypto space. On the contrary, China’s mining crackdown allowed other countries to take advantage of the situation. As for the fluctuations, it's natural for the market to see little jitters when regulations make it harder for illicit participants to go around undetected.