The Advantages and Disadvantages of Regulating Cryptocurrencies

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Author: Mr. KingsHOK
An accountant who turned cryptopreneur to pursue my interest in crypto and decentralized finance. Let me show you how to invest safely in the space with my experience over the years.

Investors have shown mixed reactions over crypto regulation.

People believe that regulation is good, while others believe self-regulation is the ticket to helping cryptocurrencies make the world a better place.

Meanwhile, several crypto enthusiasts are afraid regulation will kill the market.

Going by market reactions, it’s clear that the crypto market is hesitant, when it comes to the regulation news.

But is regulation that bad for the crypto market?

Well, it depends on your perspective on the long-term direction of the crypto market and the ecosystem at large.

Giving a perspective on this issue, here are the pros and cons of government regulating the cryptocurrency ecosystem.

In this article, we’re going to discuss how the pros and cons of regulating the entire crypto market for investors.

Benefits of crypto regulation

Let’s take a deep look into the advantages of crypto regulation, and how it will affect the market.

1. Reduce crypto scams

The cryptocurrency market is seriously making lots of individuals wealthy, no doubt about that.

Unfortunately, people are losing millions through scam coins and ICOs.

Due to the unregulated nature of this market, scammers have invaded it by launching all kinds of crypto scam.

These fake projects are pumped into the market, and as soon as investors put in money, the owners disappear with invested funds.

Investors are left with worthless tokens that later gets delisted from exchanges, and that’s if they made it in the first plact.

2. Bring legal legitimacy

Cryptocurrency investment has often been known to be risky, and it’s even far riskier than the traditional capital markets.

This does create a fast moving market for investors, but the crypto investment risks made institutional players unwilling to venture into it.

A common hope among enthusuasts is that once big investors are comfortable investing in crypto, demand will skyrocket, and prices will increase.

Institutions entering the market will legitimize cryptocurrency and send the message that the crypto asset class is legitimate.

3. Attract institutional funds

If the crypto market gets regulated with clear operational structures in place, institutional investors would pour billions into the projects.

The huge price differentials between exchanges that exist currently would cease.

Liquidity levels would also increase to make the market more efficient for people who are into the crypto business.

4. Quality of ICO, IPO and IEO

Increased regulation will increase the overall quality of cryptocurrency token issuance as well as offerings.

Issuers will be required to maintain certain security laws that raises barrier in the token fundraising market.

It will also help to place token issuances under a higher level of scrutiny.

A more difficult and highly scrutinized token issuance process will discourage fraudulent or poorly thought-out projects from holding an ICO, IPO, IEO etc.

In addition, it will result in security token offering being higher quality than the ones we’ve seen in the past.

Detriment of regulating crypto

These are disadvantages we’ll face when the cryptocurrency space gets regulated by the government.

1. Poor investor experience

This is related to the experience users face when attempting to purchase, or exchange tokens.

Though, not as important as the other considerations, it does have an impact on the ease of investment.

As investing is relatively simple – where investors simply create account using their email to access the market.

Identification procedures have ramped up, while many platforms and ICO, IPO, IEO etc. issuers requiring identifying documents to permit entry.

The identification procedures are implemented as part of KYC/AML program designed to combat money laundering and terrorism financing.

However, these programs are put in place to reduce criminal activities.

However, most investors do not engage in these activities, as some of the procedures are somewhat of an inconvenience.

2. Valuable project exclusion

Though it’s true that higher barrier to entry increases the overall quality of projects within the crypto space, it also screens out potential projects.

This is due to financial and regulatory strain that managing a compliant issuance places on smaller, capital-starved companies.

Cryptocurrency and ICOs grew quickly in popularity in a large part, because they offered investors the opportunity to invest much sooner.

On the flipside, early stage companies are able to raise capital quickly and easily to help finance the development through the ICO model.

The ICO model was popular due to its simplicity.

Companies with great ideas could easily raise funding without having to spend time and money determining the regulations to follow.

Conclusion

Despite the fear of regulating digital ecosystem, more regulation will likely benefit crypto community.

It is quite clear that the advantages of regulating the cryptocurrency market outweighs its disadvantages.

In fact, it’s only through the crypto regulation that you will be able to leave your money in an exchange without fear.

Cryptocurrency regulation challenges are not huge, as people putting money into cryptos don’t have much attachment to the whole ideology.

They are just looking for a way to invest and grow their wealth, while regulation to them is another form of protection.