Cryptocurrency has an enormous global impact influencing not only financial systems and industries but also government policies. Young populations are more excited about cryptocurrency and are amongst the top investors. However, experts are more concerned about the risk of investors’ irrational expectations from Cryptocurrency.
This is because the market price of bitcoin fluctuates more frequently and erratically. For instance, a study has shown that around 2018 the price of bitcoin rose to $20,000, however, it quickly came down to $ 7,000. This makes bitcoin investment heavily unpredictable and precarious. This is also the reason cryptocurrency investment entails a lot of risk of financial fraud. As a result, effective governmental regulations are all the more essential to ensure legitimacy and security of investors. The following section discusses some important future trends of cryptocurrency regulation.
Global Cryptocurrency Regulatory Trends
Since cryptocurrency has emerged as an influential online investment medium, governmental regulation is essential to check the adverse effects of crypto investment. Here are important future trends of cryptocurrency regulation.
1. Increase in Global Regulatory Cooperation
To combat money laundering and prevent financing of terrorism through crypto investments, there is a growing effort from nations across the world to collaborate between governments and financial regulatory boards. Most nations are more inclined to align their regulatory standards with international standards.
Financial Action Task Force (FATF) issued set guidelines on cryptocurrency regulations. Countries are now adopting these regulations to prevent illicit financial transactions. Since financial fraud cases often involve multiple nations, experts are noticing an increasing collaboration through financial treaties and agreements.
2. Prioritize Consumer Protection
Since general people are increasingly investing in cryptocurrency, they are getting exposed to scams, frauds and market manipulations. Moreover, the price of cryptocurrency is extremely volatile, enhancing the chances of serious financial loss. Thus, regulatory bodies focus more on customers’ safety and security. They create consumer protection laws that are mandatory for cryptocurrency managers to follow.
Moreover, stricter regulations exist on cryptocurrency transactions and platforms. The platforms are more accountable for their services and policies and are also liable for compensation for any fraudulent transactions and subsequent losses. The U.S. Securities and Exchange Commission has started monitoring the transactions of cryptocurrencies to protect investors from fraud and loss.
3. Regulatory Evolvement with Technology
As the cryptocurrency technologies are evolving, in a fast space, the regulatory laws need to be upgraded to keep pace with the changing technologies. The new crypto-technologies are decentralized finance (DeFi), non-fungible tokens (NFTs), and stablecoins. They are making it increasingly challenging for traditional regulatory bodies to monitor. Regulation of decentralized finance is especially challenging without a centralized body. However, regulatory bodies might come up with laws to ensure accountability from the developers of decentralized platforms.
4. Taxation of Cryptocurrency
Since cryptocurrency generates significant earnings, governments will try to tax cryptocurrency transactions. Tax payers of several countries are now required to report their cryptocurrency earnings for tax filing. In the future, it is predicted that cryptocurrency earners will face stricter tax laws. In the USA, the Internal Revenue Service (IRS) has already issued strict guidelines for tax payers to report cryptocurrency transactions and earnings.
5. Role of Central Bank Digital Currencies (CBDCs)
Central Bank Digital Currencies is a government backed digital currency. Many countries are working on issuing their own digital currencies such as China’s Digital Yuan and the European Union’s Digital Euro. They have initiated their experiment with digital currency and aim to adopt cryptocurrency as a centralized financial system. Centralized cryptocurrency platforms are believed to be more well-regulated and secured.
Conclusion
The blog has discussed some of the future trends of cryptocurrency regulation. Overall, the private cryptocurrency platforms are going to be more accountable as efforts are already being made to regulate decentralized crypto platforms by monitoring developers of those platforms. Additionally, taxpayers would be liable, by law, to report details of their crypto earnings and centralized government owned cryptocurrency would be more developed.