The effects of regulation on the cryptocurrency markets
The rise of cryptocurrency has been a quick and unprecedented phenomenon in the past ten years, with prices fluctuating between ups and downs. While some investors made the assets through the purchase and sale of cryptocurrencies on these extremes through the purchase and sale of considerable losses. The quick growth and volatility of the market have triggered an intensive debate on its possible effects on the traditional financial markets.
What is regulation?
The regulation refers to the rules and guidelines that determine governments in order to regulate the activities of companies and individuals in their responsibility. In the context of cryptocurrency, regulation refers to laws and regulations that are imposed by governments around the world to protect investors and maintain the public’s trust on the market.
The increase in regulations
In recent years, regulatory efforts have intensified worldwide, and in many countries new rules and guidelines for cryptocurrency exchanges, wall pockets and other associated services have been introduced. The Financial Action Task Force (FATF), a global intergovernmental organization, has also given guidelines for anti-money laundering (AML) and the regulations for cryptocurrency for the cryptocurrency industry.
Key regulations
- Anti-money laundering (AML)
: Many countries have implemented AML laws to prevent terrorist financing and other illegal activities on the cryptocurrency market.
- Kenn-your-Customer (KYC) : KYC regulations require stock exchanges, brokers and other service providers to check the identity of their customers before they can take part in the market.
- Taxation : The governments have started taxing cryptocurrencies, with some countries controlling profits from buying or selling digital currencies.
V.
Securities exchanges : The regulations for securities exchanges have increased, and many stock exchanges must now register traders as brokers or dealers.
Effects on the cryptocurrency markets
The implementation of these regulations had a significant impact on the cryptocurrency markets:
- Increased volatility : The strict requirements for the AML and KYC requirements have led to an increased volatility of the market because the supervisory authorities want to prevent illegal activities.
- Regulatory risk : Companies that work in the cryptocurrency area are exposed to regulatory risk if they do not comply with the new rules or regulations.
- Compliance costs : Low and penalties that are imposed by the supervisory authorities can be expensive for companies, which may have difficulty maintaining business at current prices.
V.
Market structure : The increase in the regulations has led to a shift in the direction of a stronger centralization of the market, since larger stock exchanges and brokers have become more dominant.
Examples of regulation
- China’s ban on ICOS (2017) : China banned the first coin offers (ICO) due to concerns about regulatory risks.
- US Securities Act : The US Securities Act requires that companies register with Securities and Exchange Commission (Sec) before issuing securities, including cryptocurrencies.
- The markets of the European Union in the guideline of the financial instruments (Mifid II) : This guideline requires stock exchanges and brokers to implement risk management systems and report suspicious transactions.
Diploma
The regulations have become an important obstacle to cryptocurrency markets that affect volatility, compliance costs and market structure. While regulations aim to protect investors and maintain public trust, their effects on the market were significant. If the regulations develop, companies and investors have to adapt and develop strategies to control these changes.