An investor has an idea of what to expect when trading stocks. Stocks are heavily regulated, which protects investors from fraud and other risks. However, governments are yet to implement regulations for cryptocurrencies. And this means that the crypto markets are less specific and thus riskier than the stock market. Start your trading journey with confidence by using a trusted platform like BitiCodes.
And this has been a boon for some investors. Despite, or perhaps because of, the unregulated nature of the space, early crypto investors profited for the previous decade. Partly, that’s because early investors seemed to find the lack of regulations compelling to join in. Indeed, many of these investors believed that cryptocurrencies would eventually change the rules of global finance.
At their peak in November 2021, cryptocurrencies had a total market cap of $2.9 trillion. But it was significant for an asset class that had only been around for a little over a decade.
However, Bitcoin (BTC) has lost more than 70% of its total value since its peak in 2021. The total value of the crypto markets is now less than $1 trillion. Not to mention that government regulations appear to be on the way. Before the laws catch up with us, you can invest in technology.
How Regulations May Affect Cryptocurrency Investing?
According to Adam Reed, “Regulations are a good thing for the industry” because “many institutions and larger established groups are sitting on the sidelines.” He believes many of these institutions would like to invest in cryptocurrency, but a lack of regulations makes it impossible.
Furthermore, according to Katherine Dowling, general counsel, and chief compliance officer at Bitwise Asset Management, regulations “should formulate a framework where there are disclosures.” Dowling says these disclosures will help create transparency for the entire investment class.
We can’t overstate the role of transparency for institutional investors. Because institutions are risk-averse, each investment must have a risk profile. These risk profiles are only possible for transparent assets, which cryptocurrencies are not.
For example, in May, the lack of transparency for the algorithmic stablecoin Terra USD (UST) resulted in massive price drops for UST and its sister coins LUNA and BTC. A Chicago investor recently filed a securities fraud class-action lawsuit against six crypto venture capital firms that backed Terra tokens in the months following the crash.
Tether’s USDT coin has recently caused problems for the stablecoin due to a lack of transparency. The CFTC fined USDT’s issuer $42 million after the company violated the Commodity Exchange Act and other CFTC regulations. And this was in addition to the $18.5 million settlement payment made to the New York Attorney General’s office in February 2021. Most settlements and fines are tied to audit issues for USDT’s existing treasury. And this is an example of a problem that stakeholders address with increased crypto regulation.
Scientists agree that unless there are laws regulating the reporting and trading of bitcoin assets, none of these price fluctuations will be final. This uncertainty is not sustainable for a large financial institution. Financial institutions may bypass speculating in investments that could lose them massive amounts of capital because of fundamental fiscal problems due to their enormous balance sheets.
Cryptocurrency Regulations and Cryptocurrency Prices
Regardless of how cryptocurrency regulation develops, many industry experts believe that future oversight and control will eventually help stabilize the prices of digital assets.
Since the fourth quarter of 2021, cryptocurrency prices have been in free fall. But many retail investors believe that the prices may never reach the bottom. However, the Chinese government now predicts that Bitcoin will reach zero. Of course, such a statement may be enough to keep many retail investors away from the asset class. But that won’t happen as Bitcoin’s adoption and acceptance increase globally.