Crypto is becoming more mainstream, but it still remains well on the financial fringes. A big part of the reason the industry remains such an outcast is because of the lack of regulation around projects like Bitcoin.
However, it seems like regulation in the US could finally be on the horizon. But will new restrictions be good for digital currencies? Or will they stifle the tech and defeat the entire purpose? Let’s take a look at what’s going on right now with digital assets.
What’s been happening with Bitcoin lately?
The world’s number one crypto has had a tough time lately. After reaching highs last November, the price has plummeted – shedding around 50% of its value.
Bitcoin is supposed to work like a commodity, operating outside the financial system. What seems to be happening is that it mirrors what’s going on in the stock market – but with more severe consequences.
The recent tech sell-off has hurt the performance of the S&P 500 index. Though the S&P 500 has dropped by about 5% in the last month, Bitcoin has lost almost 20%. This volatility is one of the many reasons why smart investors choose to buy shares or invest using index funds instead of pumping money into crypto.
Are Bitcoin and other crypto projects regulated?
Currently, there’s no overarching regulation. This is largely because most projects are just pieces of software that operate with no single controller.
Some countries have attempted to ban or regulate the tech. But it’s a hard task unless you’re in a country like China where Internet censorship is thorough and sophisticated.
Part of the problem is that the industry develops quickly, and it’s hard for governments to keep up. Some countries, like El Salvador, have even made the decision to go the opposite way, declaring Bitcoin as legal tender. It’s a choice that has currently got El Salvador in hot water with the IMF (International Monetary Fund), and it may lead to some of their financial aid being blocked.
How will the US regulate Bitcoin and other cryptos?
The US is in a unique position. As a world leader, once it takes a step, many other countries follow suit.
Right now, President Biden is preparing to release an executive order relating to cryptocurrency. Marcus Sotiriou, analyst at GlobalBlock, believes the US is worried about the following key threats:
- The potential impact on the US dollar as a global reserve currency
- Difficulty tracking money for tax
- Use of crypto in ransomware attacks
- Lack of legal liability for DAOs (decentralised autonomous organisations)
However, there are no concrete details yet on what the actual plan is. So it will be interesting to see how Biden’s executive order aims to tackle these issues and take crypto down a peg or two.
Will this regulation be good or bad for Bitcoin?
Marcus Sotiriou thinks that because many powerful politicians in the US have conflicting views on Bitcoin, “it’s hard to predict whether this executive order will have a positive or negative impact on the industry.”
More regulation has the potential to inhibit the growth of digital assets. It’s an area that could be a big money-maker for the US through tax income and tech advancements.
On the other hand, regulation could further legitimise cryptocurrencies. This could be dangerous if people see it as a green light to use and invest in crypto assets. The other problem is that to work, any new rules will have to be extremely clear and coherent. This is a challenge because the world of Bitcoin and crypto is anything but clear and coherent!
Investing in Cryptocurrency is extremely high risk and complex. The Motley Fool has provided this article for the sole purpose of education and not to help you decide whether or not to invest in Cryptocurrency. Should you decide to invest in Cryptocurrency or in any other investment, you should always obtain appropriate financial advice and only invest what you can afford to lose.
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About the author
George is a freelance writer focused on educating others in personal finance, tax, and investing. He’s a qualified Financial Adviser and previously worked within property and insurance in a number of different countries…. Read More
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