People are frightened about the collapse of cryptocurrency prices. Which are happening in volatile markets and will always be.
The last collapse of cryptocurrency prices, many believe is due to the fact that, in the recent days, the market has had strong government restrictions (especially in the United States, China and Japan); and they see this as something bad.
The interesting thing is that, government intervention is the best thing that can be happening. Regulatory framework implies a series of Government´s duties and obligations that guarantees the success of the market.
What is the current situation?
Cryptocurrencies were born and evolved from Bitcoin and its underlying Blockchain technology as a solution for the global financial crisis of the 2000s decade, so it won´t repeat in the future.
However, cryptocurrencies are financial instruments and financial instruments normally turn into social needs or wants. Because they become social needs, people start looking for them and using them. Thus, they must be regulated to guarantee the protection of the economic interests of a nation and its citizens. Such as happened when banks, exchange houses, and digital financial platforms were created. It happened 3 years ago with PayPal, when it was forced to pay a $25 million fine for not complying with necessary regulations, which were not evident due to the nature of this new financial instrument.
Cryptocurrencies doesn´t escape from this reality.
Why should financial instruments such as cryptocurrencies be regulated?
Financial instruments must be regulated to protect users. Why? Because if not, anyone would sell them, and if anyone sell financial instruments, scams will be at the order of the day (as is happening today with cryptocurrencies and hundreds of Ponzi schemes that claim to be a “way” for people to access these instruments).
As an example, If I create a website called www.ethereum&dash.com, in a non-regulated place, I could say this is the best way to acquire cryptocurrencies. How can mainstream public realized this is a deceiving advertising? The answer is: There’s no way to know. Why? Because it is the solely responsibility of the government to guide people about where to acquire them in a safe and regulated place.
Government Participation is Crucial
It is not about a government stating whether cryptocurrencies are legal or not. When we talk about financial instruments we talk about people social needs. Defining the “legality” of the usage of a cryptocurrency is so absurd as talking about the “legality” of the usage of Chinese Yen. We know Americans can´t use Chinese Yen within the United States, but what happens when they have to travel to China? Obviously, they should buy Chinese Yen, but where can they buy them? It is at this point when the government determines, establishes and guides citizens to buy them, in this case, in the exchange houses.
The same thing happens with cryptocurrencies. People need them, for the advantages they provide. The government is the solely responsible for guiding citizens in their purchase. And as it establishes rules for the currency exchange through the exchange houses, and loans or credit cards through banks, there must also be rules for the purchase of cryptocurrencies.
United States made it simple with current laws: cryptocurrency platforms are financial institutions that must be registered in the FinCEN, and follow the blue-sky laws regarding money service business operations. Meanwhile, the government must legislate and create other mechanisms to protect the interests of its citizens, due to the large number of financial instruments that the blockchain technology offers, for example, the ICOs. That’s when the legislation comes into play.
Legislation for the usage of Financial Instruments resulting from Blockchain Technology
Legislate about the use of financial instruments that blockchain technology provides and will provide in the near future, is a need that all governments must follow.
A couple of days ago, the United States took a historic step on this issue. The Senate Banking, Housing and Urban Affairs Committee held a hearing to discuss virtual currencies. The chairs of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) testified on their agencies’ oversight and regulatory actions thus far, as well as what they thought should be a broader coordinated effort by federal agencies to monitor and regulate these currencies, including Bitcoin, and educate the public and investors about potential associated risks.
In summary, three crucial issues were addressed:
- blockchain technology and its vast potential to develop new services and technologies that should be regulated as they are released,
- normal cryptocurrencies, which are used as means of commercial exchange, and which, like any means of commercial exchange, must be regulated, and
- ICOs as a means of fundraising, which, as well as all other forms of fundraising, must be regulated.
The fundamental core of the meeting? Simple; to protect investors and mainstream public in the access and use of these services, technologies and financial instruments.
Next Steps to Follow
Cryptocurrencies will not cease to exist, because as I said before, they are becoming a desire for many people, although at the beginning (today) many do not believe it, as happened at the time with cell phones and even vehicles.
Interesting assessments and appreciations were brought up in the United States Senate, about the joint efforts that governments are having on the subject. So, more regulations will come, which leads to a greater use of cryptocurrencies, and finally, a more stable market.
Thus, the next step is simple, the continuous development and enforcement of an Accurate Regulatory Framework for Cryptocurrencies.