Bitcoin and the Challenges for Financial Regulation

Bitcoin and other forms of crypto assets are appearing in the financial system. Though largely in their infancy, regulators, businesses and buyers have become familiar with them in such a short amount of time.

The buying and selling as well as the transactional exchange of these digital currencies have made them popular and widespread, leaving the issue of regulation by the authorities unanswered. Authorities around the world are facing challenging questions about the nature and regulation of Bitcoin and the like, as certain parts of this system and the risks involved are largely unknown.

One of the first problems with cryptocurrency was that many of the initial coin offerings were fraudulent in nature. However, as with the stock and commodities market with regulators, the cryptocurrency needs an effective regulator. In the absence of a regulator, it requires an organized agency with a deep understanding of the technical and economic problems that drive Bitcoin.

Regulation of Bitcoin and THEAnother cryptocurrency

The market valuation for cryptocurrency remains unpredictable. So Bitcoin can be valued at, say, $ 20,000, and in the next minute it will drop dramatically to $ 7,000. With the rise of Bitcoin, the SEC has raised fraud concerns as the value of Bitcoin and other coin-related offerings has suddenly risen over the past two years.

Given the sudden surge in Bitcoin’s value, the biggest problem for regulators is how to stop using it for online fraud, money laundering and terrorism. Although critics argue that these concerns are legal, the government has somehow struggled to develop guidelines for regulating the cryptocurrency. What they are most interested in is the classification of the digital currencies available and the taxation and control of those currencies.

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The challenge for regulators is to properly classify the different areas of cryptocurrencies.

Deviating regulations

Forecasting the SEC guidance for the future in different regions will be difficult, but it is common knowledge that Bitcoin and the like are subject to different security laws. Different regions have developed different approaches to addressing and regulating Bitcoin. However, the governments of different regions do not know how to manage this system.

A growing fear that is currently spreading is that of overregulation. They are afraid of over-regulating the coins and overloading Bitcoin trading platforms like the Bitcoin Future App. Lots of tax returns sabotaging bitcoin innovation by suppressing risk.

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There are currently three types of regulatory systems that can be used to keep digital currencies in check. closed system for the Chinese market, open and liberal for the Swiss market and open and strict system for the US market,

For the governments of different parts of the world, the main goal is customer protection, while legal businesses can also thrive. Although different government agencies have different views on regulating digital currencies, it is clear that at some point we will switch from raw money to digital currency. Hence, Bitcoin and the like are trends that financial institutions or government officials won’t ignore in the long run.

problems with regulation

As with the introduction of a regulator, there are advantages and disadvantages. In the US, for example, the break in the national regulatory system, as well as the various federal regulators, will pose serious challenges. Hence, regulators need to strike a balance between protecting investors and customers in their work.

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While regulation is in progress, companies and companies that want to develop and promote cryptocurrency need to determine early on whether their products are being regulated, as avoiding regulation can be counterproductive. If they are unable to predict correctly, they can be prosecuted. The Fifth Anti-Money Laundering Directive opens the scope of European anti-money laundering laws to include digital currencies, so businesses need to plan how to comply with this new change.

With the development of regulatory laws by various governments, the main problems regions face with regulation will be the complexity, the ever-evolving nature, the global nature and the decentralization of digital currencies. However, the sandbox regulatory approach developed by the UK Financial Conduct Authority should be adopted as it is considered a perfect model for regulators worldwide.

Bottom line

In the future, the right way to address and regulate Bitcoin and other digital currencies will depend on how the cryptocurrency develops. In order to project this development and summarize the corresponding regulations, the Bitcoin users and the crypto-economy they operate would have to be properly analyzed.

In this development, we should watch out for loopholes in the regulation as they can increase the risk of fraud. In the long term, however, the regulation of cryptocurrencies will have better benefits for investors and financial service providers. The regulation will support the development of new technologies and reduce the risk of using cryptocurrency in fraudulent transactions.

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