The Pros and Cons of Crypto Regulation
You can’t turn on the TV or log onto the internet for more than five minutes without hearing something about Cryptocurrency. All things considered, it is perhaps the biggest ongoing news story in the past ten years — and it’s only getting bigger. However, amid the tales of new crypto millionaires and blockchain NFTs, there is increasing talk about regulation.
Currently, the cryptocurrency industry is worth more than $2 trillion, which is more than enough value to pique Washington’s interest. Indeed, more and more experts are calling for the industry to be regulated in one way or another. However, those on the other side of the (crypto) coin feel this may hurt the growth of the crypto economy.
Below, we’ll outline the Pros and Cons of this ongoing debate.
The Benefits of Regulation
There are many people, both crypto enthusiasts and lawmakers, who feel that regulation can significantly benefit the industry. Here are some of their primary arguments.
PRO: Investors will be more protected.
Many experts worry that the crypto world is just a little too much like the “wild west” at the moment. Scams are everywhere, and there are virtually no rules preventing insider trading, market manipulation, etc. There are also many risks that investors have yet to consider. For instance, there is virtually no way to guarantee your data can’t be hacked or that the company hosting your crypto wallet won’t just shutter its doors and lock you out.
PRO: It will prevent money laundering and other scams.
Criminals of all types love the anonymity that comes with cryptocurrency trading. From money laundering to financing terrorism, lots of illegal activities can be covered up using crypto as an intermediary. Fortunately, crypto exchanges are getting better about this. They’re often forcing their customers to submit personal information before they can open an account, trade, etc. Still, the problem is far from being “under control.”
PRO: Some coins may impact the economy at large.
Most people think of crypto as having its own separate little economy. While that may have been the intention at first, it’s far from true now. In fact, there are special coins called “stablecoins,” which have attached their value to gold, the US dollar, and more. There are also “fiat-backed stablecoins,” which use short-term debt to support their actual assets. However, if there were ever a run on them, investors wouldn’t actually be able to access their money. Of course, as the money they’re trying to access is real, it would have huge implications for the economy in general.
PRO: It could help the industry legitimize and reach its full potential.
Though it was considered “underground” just a few years ago, mainstream adoption of Cryptocurrency is well underway. In fact, as of 2021, about 14% of all Americans own crypto in some form. One of the main reasons the other 86% have yet to invest? Lack of regulation.
Indeed, if regulation could be implemented to provide peace of mind to retail investors, it’s possible that the crypto market could experience unprecedented expansion. This would benefit current coin owners quite a bit, as they will have accumulated their assets ahead of the potential surge.
Arguments Against Regulation
For every great point an expert makes regarding regulation, there is an equally-knowledgeable person waiting to counter it. Here, you can read about some of the biggest and best arguments against regulating crypto.
CON: Crypto was invented to avoid regulation.
The whole spirit of Cryptocurrency involved avoiding centralization and cutting ties to governments and banking institutions. The point — as many see it — is to empower individuals to build wealth without having to worry about anyone looking over their shoulder. If regulation is implemented, this will no longer be the case.
CON: It will hurt innovation.
One of the things driving the growth of crypto is innovations in the various technologies behind it. And because there are no significant financial barriers to startups looking to develop new tech, the industry has yet to be dominated by any “giants.” If regulations were to be introduced to the process, it’s possible that many companies wouldn’t be able to navigate the new laws, harming competition and slowing innovation.
CON: It will push the market into other countries.
One of the things they don’t tell you about regulation is that most of the talk is coming from the United States. This has led many experts to predict that crypto markets will simply move into other parts of the world to avoid the new laws, harming the US’s ability to stay dominant in the industry.
For example, places like California and Miami are working hard to become “crypto hubs.” Not only are they (and independent investors) putting a lot of money into these endeavors, they’re creating lots of jobs in the process. Should the industry move to other countries, so would the jobs and the money. Moreover, it would actually be harder to protect US investors from afar.
CON: It may lower prices.
Thankfully, there are no signs that the US is looking to ban crypto outright, as China recently did. That said, the introduction of regulations would very likely cause a short-term dip in prices, as most crypto owners are anxious about the implications of such an act. In fact, prices already tumble regularly based purely on rumors about regulations.
The Final Word
The arguments here are all very compelling. However, it’s worth noting that the majority of experts feel that regulation would — over the long term — have a mostly positive impact on crypto prices and crypto in general. With the potential to capture a currently un-served 86% of the global market, it might be worth considering putting certain protections in place. Still, the question remains: if crypto were regulated, would it morph into something else entirely?
