How Cryptocurrencies Could Benefit From Greater Regulation

Digital currencies could benefit significantly from carefully designed regulation.

By establishing a proper regulatory framework, government agencies could help reduce the uncertainty surrounding cryptocurrencies, driving more robust investment and ensuring that developers and technologists have the funding they need for continued innovation.

However, creating an optimal regulatory framework may be easier said than done, several analysts emphasized.

Reducing Uncertainty

Carefully designed regulation could help eliminate some of the uncertainty surrounding digital currencies, potentially enticing a wider range of investors — including both individuals and institutions — to get involved with these assets.

Tim Enneking, managing director of Crypto Asset Management, stated that he hears this from investors “all the time,” adding that the most important part is that the regulation be “carefully designed.”

Regulatory authorities have been making progress toward providing guidance on digital assets. Japan’s government has declared that bitcoin represents legal currency.

Japan is certainly not the only nation that has made progress in this arena. In the U.S., multiple regulatory agencies have offered guidance.

The CFTC, for example, declared in 2015 that cryptocurrencies were commodities, thereby asserting its ability to regulate these innovative assets.

The SEC has also weighed in, stating that in some cases, digital currencies could be considered securities, making their issuers subject to securities laws.

Continued Innovation
If regulation bolsters investor demand, it could provide a boon to innovation by ensuring that the actors helping drive this change have the funding they need.

As long as investor inflows remain strong, it will help varying funding methods — including initial coin offerings and venture capital rounds — that provide support for innovation.

With healthy funding, developers and technologists will have the freedom to pursue multiple projects.

Regulatory Challenges

While governments around the world have been taking action to provide regulations that involve digital currencies, regulators are up against some serious challenges.

Cryptocurrencies exist on a global basis, but regulation is formulated on a national basis, emphasized Robin Bloor, senior VP of Strategy & Communications for software provider Algebraix Data.

Enneking offered similar sentiment, stating that “virtually all regulation is country-specific.”

He emphasized that even if every country created some regulation involving digital currencies, international cooperation would be needed to make this regulatory framework effective, since cryptocurrency exchanges are located in many different countries.

In addition to these potential difficulties, serial entrepreneur Marshall Swatt emphasized that the interests of regulators don’t always make them “act like partners with the business community.”

Knowing this, regulators could make more of an effort to work hand-in-hand with businesses, he asserted.

“I think the attitude of regulators needs to be revised to be more cooperative and less adversarial,” stated Swatt.

If regulators can incorporate considerations like these into a comprehensive regulatory framework, it could provide significant benefit for digital currencies, fostering both sustained investment and healthy collaboration.

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