Since the dawn of the cryptocurrency revolution, everyone has been trying to answer this question: what does a regulation actually mean for the future of digital currency? Since the first coin was created by a random programmer, there have been a number of different regulations put in place to govern cryptocurrency. Yet, as new coins continue to emerge, these regulations can become outdated as well as potentially harmful.

Cryptocurrency is a new technology that has exploded in popularity in recent years. However, few people understand how cryptocurrencies actually work or what their benefits and drawbacks are.

Fast forward three years, and it is becoming increasingly clear that the cryptocurrency market is maturing. This means that there is more institutional money entering the space, along with more laws, regulatory guidelines, and taxes. Taken together, these changes could help foster broader adoption of cryptocurrencies in the future.. Read more about crypto regulations 2020 and let us know what you think.

3. Legalization of marijuana

The Securities and Exchange Commission (SEC) in the United States is anticipated to define what a cryptocurrency is in terms of usefulness and decentralization, and categorize anything that falls outside of that definition as a security.

No one participant in a cryptocurrency could own more than 50% of the total processing power or total circulating coins in its blockchain due to the nature of its technology.

Otherwise, the blockchain would effectively become a centralized organization, with the majority shareholder gaining the ability to interfere with its autonomous operation, such as seizing users’ currencies and reversing transactions. Without a middleman, a cryptocurrency’s usefulness as a means of trade would dwindle.

The bulk of the 8,000 cryptocurrencies are highly “centralized,” meaning that project teams are likely to control more than half of the total computer power or current coins. These are often initiatives that mimic well-known goods such as Bitcoin and Ethereum.

Such initiatives may be unable to get legal recognition as a coin.

A security, on the other hand, is a centrally controlled investment contract that reflects a fractional ownership right and is backed by an asset. A cryptocurrency, on the other hand, is unlikely to exist as a security. Cryptocurrencies are not backed by any other assets and do not provide the company issuing the coin ownership rights.

As a result, the SEC’s anticipated future rules have the ability to wipe out a significant part of the cryptocurrency industry.

Personally, I believe this is good to the entire market since it will give clarity and confidence to millions of people who have been hesitant to invest in cryptocurrencies owing to future uncertainties.

When I want to invest in cryptocurrencies, I feel like I have to wager on every square on a roulette table, even as a seasoned crypto investor. Because there are just too many options that provide the same purpose, and because they are all in the early phases of development, no one can predict which ones will succeed.

If rules could remove all those that do not meet the legal definition of cryptocurrency, I would feel more confident in investing in the remaining ones.

Software wallets that hold cryptocurrency currencies are vulnerable to hacking, just like your physical wallet.

This occurred to me once, when an imposter on the internet stole the private key to one of my software wallets, draining all of my money. I was unable to pursue legal action since wallets only carry an address, which is made up of a series of numbers and letters, and no account name or other identifying information.

Another option is to store your coins at a cryptocurrency exchange, which acts as a bank for your cryptocurrency. However, since these exchanges are not recognized as financial institutions, your money will not be guaranteed by the government. If they were a legitimate financial institution, the government would guarantee your savings up to a specific amount (in the United States, up to $250,000).

In summary, many prospective investors are presently deterred from investing in cryptocurrencies due to a lack of legal protection.

KYC rules, which are currently in place for bitcoin exchanges, are likely to be extended to software wallets in the future. Software wallets will be able to obtain legal custody, and their activities will be more visible, making legal action against hackers and thefts more simpler.

Cryptocurrency exchanges, on the other hand, are expected to become legitimate financial organizations, with customer money under their control insured.

However, since cryptocurrency exchanges must comply with the same AML and KYC regulations that apply to banks, this procedure may drive more cryptocurrency exchanges out of business, particularly in the United States.

5. Consumption of energy

Mineable cryptocurrencies like Bitcoin and Ethereum may be negatively impacted if more governments try to ban cryptocurrencies that use too much energy. The Bitcoin network is said to use more energy than several nations, including the Netherlands and Switzerland.

Due to their low energy usage, staking cryptocurrencies such as Cardano, Binance Coin, Polkadot, and Solana may benefit.

But this is not to suggest that Bitcoin and Ethereum will vanish. I believe they are now too large and well-established, with flawlessly working technology and a $2 trillion ecosystem to burden on their networks. I believe there would be no cryptocurrency if these two disappeared.

Even yet, the two kinds of cryptocurrencies are in rivalry. Staking cryptocurrencies emphasize environmental friendliness, whereas mineable cryptocurrencies advertise the fact that you can’t earn money with your money.

Due to the reasons mentioned above, the market is extremely afraid of regulations, but I am of the opposite view, given the excessive number of cryptocurrencies in circulation, the legal ambiguities associated with them, and the absence of any legal protection for bitcoin assets.

Yes, rules may create havoc in the short term, but I think that in the long run, regulations will lead to widespread retail adoption and decrease price volatility.

Less uncertainty and price fluctuation would lead to more adoption, and the two would reinforce one other in a virtuous cycle.

At the end of the day, governments will achieve what they want via rules. They’ll be able to lawfully monitor all software wallets and exchange accounts, trace monetary activities, and collect taxes as a result.

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Regulation’s Effects on Price Action 

In the past, regulations have resulted in a number of price drops for cryptocurrencies. However, they were just temporary responses. Every time, prices managed to rise from the ashes and reach new all-time highs. I’ve been in the cryptocurrency industry since 2017, and I’ve seen the same cycle time and time again.

Historically, news about restrictions has been disseminated either just before a big cryptocurrency run to frighten away weak, inexperienced investors OR soon after a large surge to kick off a massive, long-term decline.

For example, in the first four months of 2021, the price of Bitcoin soared from $20,000 to $65,000, and the price of Ethereum soared from $500 to $4,500, while other cryptocurrencies like as Cardano, Binance Coin, and Solana had at least 20x increases.

A sequence of unfavorable events and reports in late 2020 preceded this dramatic price movement.

The Securities and Exchange Commission (SEC) sued Tether (the 5th biggest cryptocurrency) in September and XRP (the 3rd largest cryptocurrency) in December, alleging that XRP was an unregistered securities and Tether was not backed by enough real-world assets.

Following these cases, the SEC said that it will continue to clamp down on as many cryptocurrencies and exchanges as possible. There was a lot of fleeing from cryptocurrencies by newer, novice investors back then.

But nothing significant occurred in the end, and the craziness of 2021 began.

If new all-time high prices for cryptocurrencies are achieved in the next months, regulations are likely to return to the table.

The historic 2017 cryptocurrency run similarly began with a governmental crackdown at the start of the year that yielded no results, followed by a year-long market surge. Throughout 2018 and 2019, the rise was followed by restrictions and speculations, which caused cryptocurrency values to plummet by at least 90%.

Even yet, there is no way to predict which way the markets will go. Markets are not always rational; prices may rise when new laws are on the horizon, or they may decrease without any government intervention.

How Can You Keep Your Cryptocurrency Safe?

Although future restrictions may be beneficial to the bitcoin industry in the long term, your specific circumstance may be different. Both before and after you invest in cryptocurrencies, you must keep an eye on the market and take your own safeguards. Here are some steps you may take to mitigate the dangers that may arise as a consequence of legislation.

  • If you decide to invest in cryptocurrencies, you may need to learn how to utilize a software wallet and a decentralized exchange. You never know whether your government may prohibit or limit bitcoin exchanges in the future, so you should be prepared. Separating your investments over several platforms, like as exchanges and wallets, is a good way to spread the risk of losing access to your funds.
  • Conversion risk: Even if you trade your cryptocurrencies on decentralized exchanges, you’ll need a fiat-money platform like Apple Pay, PayPal, or the conventional SWIFT to be able to redeem your fiat cash from abroad if you ever want to sell it. Even if you are successful in transferring your money to their ultimate destination in your local bank account, you may encounter regulatory challenges. Your government may ban it or examine it for taxation reasons. To obtain real, legal guidance on international money transfers, you should contact your local attorney or adviser.
  • Legalization risk: To avoid legalization risk, always invest in cryptocurrencies that have been authorized by the Securities and Exchange Commission (SEC). If you wish to invest in non-approved cryptocurrencies on decentralized exchanges in the hopes of making a profit, you need diversify your portfolio. If you put all of your money into one cryptocurrency and it is classed as a security, the value of your investment may plummet to zero.
  • Mining cryptocurrency risk: If government pressure ever comes down on mineable cryptocurrencies, such as Bitcoin, the value of your mineable cryptocurrency may plummet. If you’re concerned about this danger, you may want to try diversifying your portfolio once again, this time between mining and staking cryptocurrencies.

Before investing in cryptocurrencies, regardless of which way prices move or how you want to diversify your cryptocurrency investment, you must first determine if you want to be a short-term or long-term investor.

Then you must devise an investing strategy based on that decision, such as determining your target top or bottom prices (If the coin reaches a certain low threshold, you buy, or if it rises to a certain point, you sell etc).

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Final Thoughts

Because of the decentralized, worldwide nature of blockchain technology, cryptocurrencies were able to develop under generally freer market circumstances, despite a number of limitations and prohibitions. However, future expansion may need additional restrictions.

If enough countries control cryptocurrency, the following will happen:

  • There may be rivalry among governments to attract bitcoin investors, forcing countries to make cryptocurrency more accessible and tax it properly.
  • The anticipated next wave of mainstream retail adoption may be triggered by the legalization of cryptocurrencies.
  • Existing and potential bitcoin investors will have peace of mind investing with legalized software wallets and established cryptocurrency exchanges.
  • Governments will, in turn, be able to legally monitor all software wallets and exchange accounts, trace monetary activities, and collect taxes on the proceeds.

All of the aforementioned factors have the potential to decrease cryptocurrency’s present price volatility, resulting in increased retail adoption in a virtuous cycle.

Although future restrictions may help the entire market, you must take your own safeguards by monitoring regulatory changes in your jurisdiction and in relation to your cryptocurrency investment both before and after you invest.

And remember that when you invest, you must first determine if you want to be a short-term or long-term investor, and then set an investing objective based on that decision.

Cryptocurrency has become a bubble of excitement and hype. More than $100 billion has been invested in initial coin offerings, and just last month, the SEC announced that it will be investigating the legality of many of these transactions. While the laws surrounding ICOs and cryptocurrencies are still being written, there are already new rules on the books that will affect the industry.. Read more about cryptocurrency laws by state and let us know what you think.

Frequently Asked Questions

Is regulation good for cryptocurrency?

Regulation is good for cryptocurrencies.

What are the regulations for cryptocurrency?

Cryptocurrency is a digital currency that uses cryptography for security. It is not regulated by any country or government.

What will regulation do to Bitcoin?

Regulation will not have a significant impact on Bitcoin.

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