By Natalie Lord
Last week we looked at ways of regulating the cryptocurrency industry. This week we move to consider the advantages of regulation in this space.
The key upside to regulating cryptocurrencies is the increased level of safety it offers. For example, ICOs are currently implemented outside of legislative regulation which increases their risk factor. ICO regulation would significantly reduce that risk, if not eliminate it completely. The same concept applies to online exchanges and e-wallets.
As it is at the moment, users have no choice but to entrust their funds to the unknown owners of these resources. Under regulation, however, the information will be openly available and accessible to the public. Further, there would be legal responsibility which means in the event of unlawful actions there would be legally-outlined consequences.
Regulating the space would also limit the volatility of the market as cryptocurrencies would be deemed to be more stable. This would attract larger investors and possibly state resources too, with cryptocurrencies being perceived as a safer consideration for investment purposes.
We’re currently in a place where countries are exploring how to deal with cryptocurrencies. Some have banned it, some have welcomed it, some are trying to implement some form of rule or regulation around it.
Looking back, sabotage is often the first reaction before acceptance. When telephone networks were first introduced they supressed services and devices from competitors. When Netscape came out, Microsoft considered it a threat. In the early days of the iPhone, Apple and AT&T blocked Skype. There are numerous examples of platforms trying to create disadvantage historically.
So what happened previously in these situations? Regulators were called in. Telephone networks were designated as common carriers which came with the obligation that they should provide a non-discriminatory service. Microsoft was forced to stop the practices they were using to try and sideline Netscape by anti-trust regulators. And after the Federal Communications Commission threatened them with net neutrality action, Apple and AT&T dropped their restrictions on Skype.
Regulation in these cases came to restore neutrality. In an environment where there are non-regulated competitive markets, the players are usually somewhat contained or controlled by the market forces around them and this acts as a form of discipline. If, however, the competitive forces from competitors (in the crypto world this would mean other exchanges), or complements (crypto assets) or customers (investors) are weak, then market players (exchanges) are not constricted and risks increase.
For example, it would be much more difficult for an exchange to delist Bitcoin, due to its high market capitalization and liquidity, compared to Bitcoin SV. This highlights the importance of Bitcoin as a valuable asset to exchanges, and impacts the way in which exchanges deal with the cryptocurrency. The same effect is true of large investors. Exchanges don’t want to lose investors who generate large trading volumes for them.
Ultimately, it’s not a question of whether the cryptocurrency market will be regulated, as regulation is inevitable in some way, shape or form. It’s rather a consideration of how it will be regulated which leads back to last week’s article: Ways to Regulate the Crypto Industry.