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Role of Crypto Regulation In the Industry

While the crypto industry holds many promising financial potential, it has also become a haven for con artists. In 2022, an unfortunate year for the cryptocurrency market, con artists targeted American consumers with fraudulent Bitcoin and other digital asset investment schemes, taking a whopping $2.6 billion. 

Because of this, cryptocurrencies, which have changed the way we do business and shaken up the global financial system, urgently need regulation. This means that trusted authorities need to step in and set some rules. So, what exactly is crypto regulation, and why is it so important?

What Exactly Is Crypto Regulation?

Crypto regulation, by definition, is the body of rules, standards, and regulations that are intended to regulate, monitor, and manage the issuance, circulation, and use of virtual asset services. The goal is to create a safe, open, and fair ecosystem for digital money transactions. 

Cryptocurrency legislation sets the door for its adoption by financial institutions and eventual broad use. Thus, it is a significant move toward legitimizing and stabilizing the chaotic world of cryptocurrencies, all the while safeguarding consumers and preserving the strength of financial systems.

Why Do Cryptocurrencies Require Regulation?

Despite their potentially game-changing impact on the financial services industry, crypto assets are not without their fair share of legal pitfalls and security threats. Due to their decentralized structure, digital currencies like Bitcoin may be used to facilitate criminal acts including laundering money, dodging taxes, and funding terrorists. 

The extreme volatility and the possibility of market manipulation can offer serious financial dangers to investors. Lack of accountability and transparency also results in no one in charge. The pseudo-anonymity of these exchanges also raises privacy issues and opens the door to fraud. Let’s take a look at the main reasons why crypto regulation is necessary for the industry’s safety.

  • Reducing Manipulation of the Market

Cryptocurrencies need strict controls due to their volatile prices and the ease with which their markets may be manipulated. Investors can be safeguarded from unforeseen losses with the help of regulatory control that encourages openness and ethical trading practices. 

  • Money-Laundering Prevention

Criminal actions like money laundering may be easier to carry out in unchecked systems. Strict client due diligence methods, which maintain track of investors’ names and whereabouts throughout bitcoin transactions, can be enforced by regulatory rules similar to those of traditional banking. Violations of these standards can be met with severe penalties.

  • Combating Cybercrime and Online Fraud

Cyberattacks are a major threat to the digital currency holders. Helping investors safeguard their money from online fraud requires regulatory measures that enforce strong cybersecurity rules and enable channels for recourse.

  • Supporting Particular Cryptocurrencies

While most people have heard of Bitcoin or Ethereum, there are dozens of other cryptocurrencies out there. An authentication system provided by regulatory bodies can educate investors about the history, hazards, and potential of digital assets.

Regulatory Institutions Around the World

Global standard-setters, such as the Financial Stability Board, the Basel Committee on Banking Supervision, and the Financial Action Task Force, continue to set the proper market expectations.  Let’s talk about the various ways in which digital assets are governed in different countries.

  • EU

When compared to other regions, the European Union has the clearest regulations. Of course, the regulatory framework for crypto exchanges differs widely among the European Union’s member states. 

In a similar vein, member states of the European Union (EU) impose varying tax rates on cryptocurrency gains, from zero to fifty percent. The Fifth and Sixth EU Anti-Money Laundering Directives (5AMLD and 6AMLD) were recently passed, and they increase Know Your Customer/Know Your Customer For Financial Transactions duties and standardize reporting requirements. 

To strengthen consumer protection, establish explicit industry behaviour, and impose additional licensing requirements, the European Commission proposed the Markets in Crypto-Assets Regulation (MiCA) in 2020. 

  • UK

The United Kingdom treats cryptocurrency as property but not as legal tender. The FCA mandates exchange registration and bans trading in cryptocurrency derivatives. The country has implemented Know Your Customer, Anti-Money Laundering, and Counterfeiting regulations for cryptocurrencies. 

Bitcoin trading earnings are subject to capital gains tax, although the full scope of tax implications may vary depending on the nature and participants of the cryptocurrency transaction. 

  • USA

The United States introduced a new cryptocurrency regulatory framework in 2022, broadening the purview of agencies such the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). 

The SEC filed a high-profile complaint against Ripple, claiming the company had illegally raised over $1.3 billion through XRP coin sales. The SEC has also begun investigating cryptocurrency exchanges like Coinbase and Binance.

  • China

In China, cryptocurrencies are considered property for inheritance purposes, but the government takes a hard stance against them. The People’s Bank of China (PBOC) has outlawed the use of cryptocurrency exchanges and the funding of public projects with cryptocurrency. 

As a result of the Bitcoin mining prohibition in May 2021, several miners either stopped their businesses or left the country. By the end of September 2021, virtual currencies were officially prohibited. Despite this, China is pushing on with the development of its electronic Yuan (e-CNY), a pilot program for a central bank digital currency.

  • Japan

By classifying cryptocurrencies as “legal property” under its Payment Services Act (PSA), Japan has taken a progressive stance on cryptocurrency regulation. Trading platforms for cryptocurrencies must get FSA approval and follow anti-money laundering and counter-financing of terrorism guidelines. 

In 2020, all cryptocurrency exchanges in Japan became members of the Japanese Virtual Currency Exchange Association (JVCEA). To combat money laundering through cryptocurrency exchanges, Japan said in 2022 that it will implement remittance laws by May 2023.

Wrapping Up

Increased education on the pros and cons of cryptocurrency use is leading to a more nuanced understanding of how to proceed in this dynamic field. We are working toward a future where the revolutionary power of cryptocurrencies can be harnessed without exposing our hard-earned money to needless danger, and we are doing it in combination with the development of regulatory frameworks. 

Therefore, Successfully navigating the crypto environment requires keeping up with regulatory developments, continuing education, and sound judgment.

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