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Cryptocurrency, previously associated only with sales in the underbelly of the Internet has gained mainstream traction this past year. The decentralized market is seen as a sort of people’s hero, the underdog who defies traditional financial establishment, with Bitcoin as the symbolic leader.
Its newfound fame and surge in popularity lead to what experts call ‘’the Bitcoin Bubble’’, with Bitcoin valuing $17.000 at its highest. Even though the bubble burst and the virtual coin dropped under the psychological threshold of $10.000, various countries around the world, are seeking to regulate the market and impose new rules to protect consumers. Will then federal cryptocurrency rules totally change the trading landscape?
Legal Attempts to Regulate the Market
The establishment is growing weary of the cryptocurrency’s popularity and many countries have, or are preparing to, take measures to regulate the market. Since the transactions are theoretically anonymous, making them very hard to trace through regular means, hackers and other tech savvy groups jumped on the cryptocurrency bandwagon and increased their criminal activities. As recently as February 2018, Fortune reported that an Ukrainian hacker group called Coinhoarder has stolen more than
$50 million in cryptocurrencies from Blockchain.info users using ‘’poison’’ Google Ads.
Because cryptocurrencies do not rely on central authorities or traditional institutions to regulate and govern transactions, examples of scams like the one mentioned above, ICO scams and other financial crimes have only increased in number.
In reaction to this, the United States Congress is seeking to
regulate the market and attract it under the umbrella of established financial entities. Moreover, the UK and the European Union are drafting cryptocurrency laws amid crime and tax evasion fears, while China seems to be making efforts in this direction because Bitcoin ads suddenly disappeared from local social media portals.
As a result, everyone, both big players on the cryptocurrency market and regular people who follow the market, are wondering how exactly regulation will affect trading. Will government oversight and legal protection ruin the appeal of cryptocurrencies and turn it into a regular currency?
Volatility factors
Cryptocurrency value is dependent on many factors, and not the coin’s technical merits alone. Public perception determined by political changes, relevant news reports or even a Tweet posted by a famous person can make the coin rise in value or send it into a downward spiral. Bitcoin value plunged after a misleading report which stated that India will ban it. The same thing happened when South Korea was considering instating a full ban on the cryptocurrency.
Therefore, due to its dark horse status and volatile nature, it is only logical that stakeholders are trying to control the market. But ironically, increasing regulations around trading could inflate the value of the coin, giving it even more leverage against traditional currencies.
Because their value depends among other factors, on scarcity, increasing the difficulty to cash out through laws will incentivize people to hold on to their coins for longer. As of this month, Bitcoin
bounced back to $10,000, so maybe the coin is not as affected by increased regulation efforts as previously thought.
Due to its decentralized nature, the cryptomarket is very volatile. Cryptocurrencies do not rely on relationships between countries, trade deals, diplomatic moves or other traditional means to rise in value. Using the
best cryptocurrency indicators to trace a predictable route might help though, even if the coin is prone to drastic changes on the blink of an eye.
Will Trading be Affected by Regulation?
According to the United States Constitution, art. I, cl. 5, the United States Congress might have, theoretically, the power to prohibit virtual currencies if it affected the country’s ability to perform commerce and trade with foreign nations. In a 2014 decision, the Court supported the regulators intent to
prosecute a defendant who created a virtual currency that resembled U.S. coins allegedly for the purpose of domestic terrorism.
Other than this fringe case, the authorities have had no reason to outright ban cryptocurrencies. But efforts are being made to control it. Regulators around the world have raised alarms, stressing that cryptocurrency can aid criminals in money laundering and terrorist acts.
The U.S. Commodity Futures Trading Mission (CTFC) recently decided to class cryptocurrencies as a commodity. This means that people making profit out of virtual currencies are required to declare it to the IRS, which is a major blow to the market’s decentralized, unregulated nature.
In any case, currently, there is no consensus on how to regulate the cryptomarket on a federal level, so there is no telling how exactly it will change the trading landscape. Theoretically, two things could happen. In the first scenario, cryptocurrencies will lose the advantages offered by a decentralized and become like any other currency, and big players will search for alternative ways to recreate it. In the second scenario, cryptocurrencies will become more valuable than ever because of the scarcity caused by intensive law scrutiny. Whether or not each scenario will occur remains to be seen.
www.AdmiralMarkets.com