Regulators have made strides to manage crypto’s volatility, using existing rules as leverage to regulate cryptocurrency. SEC and CFTC both apply existing regulations when it comes to crypto, while FinCEN works to ensure exchanges comply with identity verification requirements.
But our work is far from done: recent dips in crypto valuations and other issues have led to calls for further regulation.
What Is Cryptocurrency?
Cryptocurrencies have rapidly grown in popularity over recent years, now valued at trillions. They’ve also proven a popular investment vehicle; however, as with any asset class they can be highly volatile.
Cryptocurrencies differ significantly from traditional money in that they’re decentralized and rely on computer software for transaction tracking, making them easier to transfer across borders than traditional currency and bypassing government controls – making them particularly appealing in authoritarian regimes where accessing funds and buying goods and services are restricted or outright banned.
Note, however, that cryptocurrencies are not financial securities and therefore lack the same protections as stocks or mutual funds. They could potentially be compromised, lose value and fail completely; as a result, investors should only invest funds they can afford to lose in them.
What Are the Benefits of Cryptocurrency?
Cryptocurrency provides numerous advantages, such as 24/7 trading on a decentralized data-storage ledger that cannot be compromised and using it as an alternative means to purchase items without needing bank accounts – particularly advantageous in developing nations without access to traditional banking infrastructure.
However, cryptocurrency does have some drawbacks. First of all, its anonymity enables criminal activity such as money laundering and terrorist financing, due to money laundering schemes using cryptocurrency being possible. Furthermore, many cryptocurrencies utilise proof-of-work consensus mechanisms requiring powerful computers to validate pending blocks on blockchain resulting in excessive power usage with potential environmental implications.
As with any investment, cryptocurrency requires careful research. Consulting with an experienced financial professional who understands this industry may also prove beneficial; unlike stocks with well-defined reporting requirements and regulations that make their evaluation straightforward, cryptocurrencies remain unregulated and therefore difficult to assess.
What Are the Risks of Cryptocurrency?
Cryptocurrency can be an unpredictable asset with numerous risks associated with its trading, such as price fluctuation, hacking and lack of regulation surrounding cryptocurrency trading. By staying informed on industry news and monitoring transactions sent via multi-sig wallets with multiple parties approving transfers, you can reduce the chances of price decrease or loss due to hackers.
Investors must also factor in regulatory changes or crackdowns as an added risk, with crypto prices being highly volatile and not enjoying consumer protections similar to traditional securities. Since investing in cryptocurrency tends to be done opportunistically, it’s crucial that it fits within your overall portfolio strategy and risk tolerance. Business risk should also be taken into account since many cryptocurrencies are tied to specific technological products which could fail or lose favor and cause their value to plummet drastically – this may cause cryptocurrency’s value to decrease significantly over time.
How Can Cryptocurrency Be Regulated?
Cryptocurrency has recently received increased scrutiny from regulators around the world, including from the Securities and Exchange Commission which wants to classify digital assets as securities. This move stems from concerns over its volatility and integration into regulated financial systems as well as recent high-profile investor failures that necessitate regulation efforts in this space.
As the global regulatory framework for crypto is still being created, its patchwork nature makes it challenging to know which laws apply in different nations. Nonetheless, regulations typically address investor protection from market manipulation and scams; AML/CTF/counterfeiting controls; licensing requirements for crypto exchanges/wallets/providers; as well as disclosure obligations.
Advanced market economies tend to lead emerging market economies in terms of regulatory development. Overall, cryptocurrency is legal in 32 countries while partially or generally banned from 10 of them (map below shows this status of regulation for various actors involved with crypto). To make informed investment decisions when purchasing or trading crypto assets.
