Cryptocurrency is hard to pin down. In fact, some governments have difficulty labeling exactly what it is. However, due to its growing popularity, many individuals and policymakers are looking into regulations. Specifically, as the most popular cryptocurrency, Bitcoin is at the center of the conversation. What, then, would happen to the crypto market with more regulation?
The Difficulty of Regulating
To regulate Bitcoin, the U.S. Securities and Exchange Commission (SEC) will first need to define what the crypto-asset actually is. Some organizations, like the IRS, qualify it as property — like a home. Others signify that Bitcoin is a commodity. In fact, Bitcoin is more similar to a stock than actual currency.
In part, its stock-like nature is due to its changing value. Cryptocurrencies – and Bitcoin especially — have a reputation for volatility. For instance, Bitcoin’s stock value has dropped by 20% quickly in the past. You will also see the stock rise to record highs at other times, though. These fluctuations are common and create a major impediment — business can’t thrive with a volatile currency.
If the SEC chooses to proceed with legitimizing, regulating and legalizing Bitcoin as an official currency, its price swings could hurt businesses.
Further, fear of overregulation turns people away from supporting the SEC’s plans. Bitcoin is a flourishing industry. It has the potential to do great things for the crypto world and for investors. If the SEC overregulates it, then it may stifle that potential and keep it from full U.S. integration.
The Benefits of Regulating
While Bitcoin does have unique features that set it apart from standard currencies, it also has room for growth. For instance, one of the biggest issues with the crypto world is a lack of security. While it does use blockchain – which is secure in theory — hackers stole $283 million worth of crypto assets in 2019 alone.
Now, with COVID-19 still running rampant throughout the world, Bitcoin may continue to take off in 2021 as a financial resource. Therefore, it needs more attention and finetuning before that surge happens.
If the SEC goes through with regulations, then it can impose more security protocols. Scams, fraud and criminal activity of all kinds need to drop. It can become a safer stock to invest in and use.
Further, regulations could standardize Bitcoin. The decentralized nature of Bitcoin draws investors in. Some people like the idea of the security and control they have with a decentralized stock. If the SEC legalizes Bitcoin, more people would invest. Then it could be a normal form of money, paving the way for more cryptocurrencies and stocks to follow in its footsteps.
Additionally, regulations may reduce volatility. Once Bitcoin becomes more standard through legalization, its market can even out and become more reliable for investors and businesses.
The Paths Ahead
From its current standing, you’ll see Bitcoin’s potential for the future. Regulations can make it official or break the spirit and enthusiasm around its risk-taking nature. However, there must also be a middle ground that can balance what Bitcoin needs and what investors need.
To find this balance, the SEC should focus on a variety of things. First, security is key. What do investors and individuals need from Bitcoin? How can the commission guarantee better handling of crypto assets, especially as it becomes more popular?
Second, the SEC will need to look into self-regulation. For instance, Bitcoin is already an autonomous system — how can it regulate itself with moderators, rules and technology?
Finally, the SEC will also need to make sure that Bitcoin doesn’t displace current currencies. How can all currencies coexist and help individuals and the economy?
The Right Balance
With a balance of the right dynamics, Bitcoin can flourish through proper regulation. Building upon its strengths and finding solutions for its weakness are possible. Taking the right path will take Bitcoin to a new level. The digital asset is here to stay — it’s time to focus on bringing it to its full potential.
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