Why should regulatory approval be made mandatory for cryptocurrency exchanges?
The cryptocurrency market is burgeoning and attracting more and more users every day. According to the most recent statistics, there are almost 29 million Blockchain wallet users as of Q3 2018. At the time of writing this article, the market capitalization of bitcoin stands at over $114 billion.
Given the figures of the cryptocurrency market, the need for making regulatory approval a requisite for cryptocurrency exchanges becomes evident. Millions of people have put in billions of dollars in this market, and without a regulatory framework to protect the interests of these people, it gets really easy for scamsters masquerading as cryptocurrency companies to swindle investors out of this money.
Pump and Dump schemes are not uncommon in the market. In a pump and dump scheme, users organize groups of investors who start buying tokens at a particular price point to create a fake rally so that other oblivious users also start purchasing tokens anticipating that they will benefit when prices rise further. When the token price reaches a certain level, the scheming investors sell off their tokens to benefit from the price difference.
Crypto exchanges have also been accused of listing shitcoins on their platforms in exchange for heavy listing fees, which has led numerous investors to invest in the wrong coins and thus, lose their money. Hence, a regulatory framework which allows this nascent market to grow, while keeping a check on fraudulent and manipulative practices is required. Several jurisdictions across the world are creating regulatory frameworks for cryptocurrency and the infrastructure associated with it, to allow this market to grow in a controlled manner.
Regulation will not only help provide better protection to investors in the crypto market, but it will also help cryptocurrency exchanges in several ways. According to a Lithuania-based crypto payment company, Mistertango, 88% of cryptocurrency exchanges are in favour of industry regulation, as believe that this will lend some stability to the prices in the market, and bring about some certainty which the market lacks at the moment. It is obvious that cryptocurrency exchanges would benefit from being a part of the formal system, rather than being outside it, as this would create confidence among more users who had been hesitating to enter the market because of regulatory uncertainty. Experts are of the opinion that regulation will be a catalyst for scaling the cryptocurrency market as regulation might even enable crypto ventures to raise funding from banks and financial institutions for their development.
Thus, the regulation of cryptocurrency exchanges will not only be a positive development for investors, but for cryptocurrency exchanges too. It is likely that the right amount of regulation in the crypto market will expedite the development of the industry by providing an environment which supports innovation and growth in the industry and discourages scams and manipulative practices.
