5 Reasons: Why Regulations Will Benefit The Crypto Industry

5 Reasons: Why Regulations Will Benefit The Crypto Industry

Bitcoin’s success has spawned an entire industry in just over a decade. Over the years, thousands of new coins have appeared on the market, each one trying to bring something new to the table. 

However, while cautious investors buy bitcoins, the more impetuous ones risk their capital on less safe opportunities. And due to their decentralized nature, cryptocurrencies are seldom regulated. 

Anyone in the world can create their cryptocurrency and release it on the market. As a result, the crypto sphere has seen its fair share of scams, hacks, and fraudulent schemes. 

In this article, we will discuss some of the main benefits of cryptocurrency regulation and why we think regulation is essential in the long run. 

How are cryptocurrencies regulated today?

As we briefly mentioned, very few countries have clear regulations for cryptocurrencies. This is due to their complicated decentralized nature, but also because of the differences in perception of crypto by different governments. Many see them as a threat to their fragile financial ecosystem and prefer to avoid them altogether. 

With that said, every country has a different opinion on how to handle cryptocurrency regulations, increasing the challenge for a universal regulatory framework. 

And while most developed countries have at least tried to streamline the tax regulations regarding cryptocurrencies, a homogenous asset regulation is still a far cry from being realized. 

Moreover, regulations are often met with fierce disapproval from the community. This is a shortsighted view, as the benefits of regulations heavily outweigh the drawbacks, as we will explore further down in this article. 

Benefits of crypto regulations

While the mixed reactions from investors over the regulation of cryptocurrencies are understandable, we believe that there are some clear benefits to this that will improve the entire industry as a whole. 

Improved project quality

For the time being, any company or individual is free to create their own cryptocurrency and release it on the market. 

While centralized cryptocurrency exchanges can act as a buffer between the investor and the project founders,  this is not the case for decentralized exchanges. 

This has resulted in poorly optimized blockchains being listed, with smart contracts prone to hacks and malicious intent. 

Having an objective regulative body that would help improve the overall quality of the cryptocurrency industry. The regulation also stimulates independent funding in new projects, ensuring research and development backed by institutional money. 

Fewer scams and rug-pull schemes

Another side-effect of the decentralization of cryptocurrencies is the sheer number of scams present in the ecosystem. 

Many still have bitter memories of Bitconnect, one of the biggest Ponzi schemes during the ICO craze of 2017. It resulted in $250 million losses for investors. 

Today, these are still prevalent in the DeFi ecosystem, with one recent rug-pull scheme leaving investors $33 million lighter, considering the Bitcoin price today. 

Regulations could reduce this trend significantly, as projects would need to comply with a number of measures before being listed on exchanges. Furthermore, teams will be scrutinized closely, and anonymous founder scams would become a thing of the past. 

Easier asset categorization

By regulating cryptocurrencies, we can also more easily categorize and understand them. This means that regulative bodies can classify assets, providing users with a clear guideline on how they are taxed. 

For instance, we could avoid occurrences like the mass de-listings of privacy-focused coins, where investors suffered severe losses because of this. Instead, their status would have clearly been defined beforehand, allowing for less uncertainty in the market. 

Access to government insurance plans

Because they are highly unregulated, cryptocurrency exchanges rarely propose any kind of compensation plan in case the user’s funds get compromised. In fact, there are little to no legal ways for users to recover lost funds in case of a security breach. 

 

Regulations could bring a stop to this, and offer access to government-backed insurances on funds such as the FDIC or the SIPC. 

Increased institutional participation 

The increased security of the entire system through regulation should provide a less uncertain and volatile environment. The benefit here is twofold: 

• First, we would see greater adoption of cryptocurrencies for merchants. This could drive the usage of cryptocurrencies as methods of payment further up, ensuring quick mass adoption. 
• And second, a stable industry will stimulate financial institutions to begin investing in cryptocurrency. While big companies are already jumping on the bandwagon, financial institutions are still lukewarm on cryptocurrencies. 

Regulation could bring the “big money” players in crypto, ensuring the industry a bright future. 

Conclusion

Regulations are often met with opposition by the crypto community. However, as we saw in this article, the benefits of regulations for the industry are quite substantial. In the long term, regulation will offer a safer environment, protective of the individual’s capital. 

The price to pay is small for a healthier industry, devoid of scams and poorly optimized projects. Contrary to popular belief, regulation should increase the value of the market instead of hindering its growth.