One of the factors that most affects the evolution of cryptocurrencies is the news that talks about its regulation or its control by some institutions or countries. This is so because one of the engines that drive crypto assets is their decentralization and the possibility that they allow to move money in a decentralized and anonymous way.
Many investors who trade in cryptocurrencies doubt the real possibility that the cryptocurrency sector can be organized without impacting aspects that are the basis of its existence, such as decentralization.
Challenges for cryptocurrency legislation
Experts point to several challenges when we talk about the possibility of organizing or regulating cryptocurrencies. For example, cryptocurrencies have a decentralized structure that is not limited to a single jurisdiction. It is possible to legislate on companies and people from a specific geographical area, but not on a decentralized blockchain. Each new legislation should be limited to firms located in its area of control.
On the other hand, legislation should be technology neutral. Come on, you should not legislate on technology, but on the business model that applies it. Each cryptocurrency is supported by its own technology. If the legislation focuses on that technology, it unbalances the market by hurting one cryptocurrency and benefiting another.
Third, any legislation should have clearly formulated objectives that are transparent to market participants. It is about setting certain limits or establishing guidelines so that companies and business models know the rules so that they can adjust to them.
Know more and better the sector before trying to organize it
It seems that much of the problem stems from a lack of knowledge of the cryptocurrency sector. Regulators need to keep an eye on the ecosystem to understand the direction of the industry. Only then will their decisions have a real foundation and will create the necessary trust to create a more transparent and robust ecosystem.
Perhaps the first step towards regulation is to define which entities should carry out the main functions of the sector, such as exchange platforms, companies that offer crypto wallets and other centralized entities.
From there, progress can be made in regulating crypto assets. With entities authorized to oversee crypto projects, work can be done to improve transparency, volatility, market knowledge and market perception by investors.
After all, the risk of investing also exists in all asset classes and they are regulated. That sets up a transparent investing and trading playing field where each investor decides what to do without the meddling of a centralized entity.
And, of course, where investment in cryptocurrencies is accepted, the security of the companies must be ensured. One of the big problems in the sector is that from time to time cryptocurrency exchange platforms go bankrupt. This year we are four with the recent bankruptcy of FTX.
Countries that accept that cryptocurrency companies have their headquarters, whether developed or emerging, must have regulations focused on avoiding the risk of financial instability that these firms can cause. Trading in cryptocurrencies is greatly affected by the fall of the platforms since it is very difficult to avoid this risk of financial instability in companies that invest in highly volatile digital assets.
In reality, the countries that have been most favorable to cryptocurrencies offer less regulation and fewer guarantees than others. This means that a certain lack of control is generated in the market, since there is great doubt as to whether cryptocurrency companies seek to establish themselves in countries where there is less regulation or where it is more lax.
In the short term, a sector organization can be accepted without impacting its decentralization with restrictions on the use of crypto assets for certain activities that can further increase their volatility, such as derivatives.
Some regulations are unacceptable
However, what is not acceptable is that the creation or use of crypto assets is prohibited because they are the tip of a technological iceberg that is more than justified in improving and saving the global financial system.
In this sense, the regulation that threatens decentralization will never be welcome since one of the objectives of cryptocurrencies is to establish decentralized means of payment that can reach all people, whether or not they have an account in a bank where everything is centralized and where you have to pay high commissions for their services.
Nor would it make sense to regulate cryptocurrency trading any more than trading in other asset classes is regulated.
However, coordination and cooperation between the different countries will be necessary. It will be necessary to establish international standards that allow the growth of cryptocurrencies as a form of decentralized payment throughout the world. Not in vain, cryptocurrencies are a project in constant evolution and it is very possible that the economic functions of cryptocurrencies today will not be the same as those of a few years from now.
