Crypto Regulation Is Actually a Good Thing for Investors. Here&039s Why | NextAdvisor with TIME

Cryptocurrency regulation can be a controversial topic, but many experts say crypto investors should welcome it.

For starters, more regulation could mean more stability in a notoriously volatile crypto market. “Regulations will and have to come at some point, which would further stabilize the market,” says tally greenberg, director of business development at allnodes, a platform that provides hosting, monitoring and staking services. “That protects investors, so that’s a good thing. It’s not a bad thing.”

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Still, many cryptocurrency enthusiasts fervently oppose the new regulation. they say it would hinder innovation and goes against the spirit of cryptocurrency, which emphasizes decentralization at its core.

For these anti-regulation cryptocurrency enthusiasts, the decentralized nature of digital currencies like bitcoin, which, unlike traditional currencies, are not backed by any government institution or authority, is a huge draw. therefore, from this point of view, any new regulation would represent a threat to decentralization which is a feature, rather than a bug.

The new regulation also has the potential to protect long-term investors, prevent fraudulent activity within the crypto ecosystem, and provide clear guidance to enable companies to innovate in the crypto economy, according to aaron klein, lead researcher at studies economics at the brookings institution, focused on technology and financial regulation. but the upcoming regulation will need to strike the right balance, she says.

“You actually have three possibilities: no regulation, poor regulation, good regulation,” says Klein.

what’s next in crypto regulation?

While a surge in mainstream crypto adoption in 2021 sparked ongoing debate about the government’s role in this largely unregulated sector, clear rules are still being developed. this has left the industry in doubt as thousands of digital tokens and currencies are introduced, and new companies and platforms spring up to help store and trade them.

“Policies haven’t been designed yet, because there’s no precedent for blockchain and crypto, so it’s a hell of a task,” says Greenberg. “I understand why people are late, but something has to happen soon.”

Recent conversations on Capitol Hill suggest that it’s not a question of if there will be more regulations, but when. President Biden signed new tax-related crypto legislation into the $1.2 trillion bipartisan infrastructure bill late last year. and the federal reserve is toying with the idea of ​​issuing a US dollar. digital currency.

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The Federal Reserve released a long-awaited report in January exploring the costs and benefits of a government-issued digital currency. The report ultimately deferred a final decision on whether to go forward, and the Federal Reserve is giving the public and other interested parties until May 20 to provide input before taking further action. stablecoins are also a hot topic, with many experts anticipating that it will be the first type of cryptocurrency to be regulated.

While the new regulation has the potential to bring more stability to the crypto market, it remains a highly volatile and speculative investment. That’s why financial experts advise most investors to keep crypto below 5% of their portfolios and never invest in crypto at the expense of saving for emergencies or paying off high-interest debt.

why crypto regulation would be good for investors

We asked experts for their thoughts on the changing crypto regulatory landscape. this is why they say more regulation would be a good thing for cryptocurrency investors in the long run.

1. more stability in the market

Regulating crypto could be a healthy development for the industry, at least as far as everyday investors are concerned. more regulatory guidance, if well targeted, could help reduce speculation among crypto assets. Less speculation may lead to increased investor confidence, which could attract more long-term investors who have so far said no thanks to a highly speculative and volatile crypto market.

“Even if it doesn’t attract more people, it can change people’s current behavior,” says Klein. Enthusiasts claim there are many benefits cryptocurrency has over fiat currency and other asset classes, but those benefits can only be fully realized “if an appropriate regulatory framework is put in place,” according to Klein.

It is difficult to predict how the price-sensitive asset class will react to regulation in the long term, as it will depend on whether the ee. uu. the government takes a more lenient or strict approach. in the short term, any new regulation could inspire knee-jerk reactions from investors to the markets, suppressing the trading values ​​of cryptocurrencies. For example, when China banned cryptocurrency transactions in September 2021, cryptocurrency markets fell. But in the long term, regulation may have the potential to stabilize the market and reduce some risks for crypto investors, Greenberg says.

To be clear, the new regulation could slow down those trying to get rich quick by predicting the next coin to go “to the moon,” he says. but that’s a good thing for long-term investors.

“Slowly but surely, we are not only being massively adopted as an industry, but we are also more or less stabilizing. regulation will stabilize the market even more”, says greenberg

2. increased investor protection and confidence

Crypto investors currently have little to no protection in the market as there is no regulatory framework in place to ensure asset protection.

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some exchanges maintain compliance with evolving federal and state regulators in the united states. This includes many high volume established exchanges in the US. In the US, such as Coinbase and Gemini, but they are not regulated in a similar way to public stock exchanges or alternative trading systems. That can be problematic, according to Timothy Massad, former chairman of the Commodity Futures Trading Commission and senior fellow at the Kennedy School of Government at Harvard University.

“Most of the trading that takes place in the cryptocurrency world today is not regulated by any federal authority, and that is a big gap,” Massad says. “That means investor protection is much, much weaker on these big exchanges than it is on our stock markets or our futures market.”

That’s why regulation is needed to make the market safer, says klein. Cryptocurrencies are likely to remain a risky investment, like individual stocks, but investor protections could make the market less vulnerable to outside manipulation. safer markets can lead to greater investor confidence, which often means higher value over time.

“[Regulation] is important for investor confidence. it’s important for basic fairness, and ultimately it’s important for the industry to grow,” says klein.

3. safer crypto ecosystem

Cryptocurrencies have been described as the “Wild West” by Security Chairman Gary Gensler due to the lack of regulation in the industry. The lack of laws and policies in this burgeoning area has created an opportunity for widespread fraud, scams, jerks, and market manipulation.

“Cryptocurrencies are not subject to requirements to prevent fraudulent manipulation. it is not subject to conflict of interest standards,” says massad. “My point is simply that we don’t have the same kind of standards that we have in other markets. today, that means the buyer has to be careful, essentially.”

Crypto crime has grown tremendously in the last two years. Fraudsters made off with $14 billion in cryptocurrency last year, a record compared to the $7.8 billion fraudsters took in 2020, according to a report by blockchain data firm chainalysis. and there are more than 17,000 altcoins, which are often even more volatile and speculative than bitcoin, and carry a higher risk of crypto scams and fraud. Even the most advanced and enthusiastic cryptocurrency experts understand that there are many new and evolving risks in the world of cryptocurrency right now.

but there are several ways to protect your crypto. For starters, watch out for some common red flags that are similar to classic money transfer and credit card fraud scams, like obvious misspellings in emails or social media posts, promises to make you rich, or even crypto schemes large-scale social networkers known as rug pullers.

To protect your digital wallets from hackers, practice good digital security habits, like using a hot or cold wallet for extra security or keeping your crypto on an exchange with strong security. It is also extremely important to keep track of your wallet key and not show it to anyone. losing your key or having it stolen could mean losing your crypto entirely. “As much as I like decentralization and the lack of government [involvement], I’m glad they’re paying attention, because unfortunately with cryptocurrency, there are a lot of scams,” Kiana Danial, author of “Cryptocurrency Investing for Kids,” recently told NextAdvisor. fools.”

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