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How Will EU Regulation Impact Bitcoin Traders?

EU regulation

November 2, 2020 | 

JOHN K MWANIKI |  0 Comments| 

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The European Union commission is in the advanced stages of its crypto regulations. The rules seek to streamline the virtual currencies operations within the region. It is also about making the market safe and positioning the EU as the global digital currency leader.

The regulations have impacts on the service providers, traders, and even the manufacturers. 

Here are the possible EU regulation impacts on Bitcoin trade;

The Rise of the Crypto Markets 

Ever since being launched in 2009, Bitcoin has been on a growth pattern. Started as an alternative to the fiat currency, the coin has surpassed expectations. Most of the traders were skeptical about the coin in the early days.

Most people looked at fiat currencies as the ultimate product. It comes with government regulation and control. No new product looked like it would disrupt the entrenched ideologies in the traditional economy. 

Embracing a new online-based currency seemed not a possibility. Traders had several concerns—the first being on how to avoid double-spending. There would be possibilities of a currency used twice when not recorded fast enough. The blockchain technology came with a centralized transaction ledger. This records all transactions. 

Since the launch of Bitcoin, the cryptocurrency market has grown to over 5,000 cryptocurrencies. It has reached the largest market capitalization of around $800b in 2018. The current market capitalization is around $300b, and it keeps on growing. 

Satoshi Nakamoto envisioned cryptos as an alternative to fiat currencies. That they are used as alternatives in buying goods and services. They have fared even better. Its use as a speculative investment has been more spread. Companies are using the Initial Coin Offering (ICO) to raise capital than never before. Several investors are willing to invest in early projects for future profits. 

There has also been a surge in the crypto exchanges. The access to Bitcoin exchanges means traders can buy, sell, and store the digital coins. The exchanges also allow trading with other commodities like fiat currencies. They can also trade with other cryptos or traditional assets like gold. 

The market has had its highs and lows, yet it keeps growing. It's becoming more mainstream. Already some countries are looking to adopt central bank-backed cryptocurrencies. 

The Need for Regulations 

Even though expanding, cryptocurrencies come with several concerns. The first issue is volatility. The decentralization of the coins means no one controls the supply. It depends on the market free movements. 

This means the price changes happen fast within the market. Changes of more than 20% within a day are not strange in the crypto cycles. The changes mean the traders never settle.

The other concern is its use for illegal transactions. The decentralized nature of digital currencies makes it attractive for illegal transactions. Different outfits have used it to finance terrorists and criminal activities like drugs. Some also use it for money laundering. The same way some countries use it to beat economic sanctions. The illegal transactions put the legit traders' safety at risk.

The risks that come with the crypto use calls for investors and consumer protection. Several traders have lost their money to frauds and other online hacks. There have been cases of ICO tokens offered without related projects picking up. This means the investors never got anything in return. 

Without a regulatory policy in place, traders will keep on losing money. This calls for the need for regulations. Already different countries have reacted to control their national operations. 

Switzerland, Malta, and Singapore developed crypto regulations to attract more users. Other countries like China responded by banning cryptos. All this was to protect the investor and consumer interests.

The European Union is on the verge of implementing a robust crypto regulation policy. The regulation is to streamline the market while protecting users. 

The proposal is in the advanced stages before adoption. When adopted, it will come with several impacts to the traders.

Impacts of Regulations on Bitcoin Traders

The EU regulation is what the crypto traders need at the moment. Here are the top impacts it will have on them;

  • Improved trading experience with reduced volatility

Volatility has been a hindrance to many traders joining the crypto market. Most traders prefer certainty when investing. 

A regulated market is friendly for institutional investors. They will pump more money into the market, leading to high liquidity. More liquidity means fewer disruptions in the case of large withdrawals. The whales won't have so much influence.

  • Increased Trading Options

The high possibility of losses means traders unwilling to take risks. This will be different when the regulations get in place. Investing in ICOs will be as safe as trading in the crypto exchanges. The safety allows one to diversify investments in the various trading options. 

The regulations cover more than cryptocurrencies. There are several commodities within the crypto-assets scope. The alternatives allow traders the needed spreading of risks.

  • Secure Crypto Market 

Security has been a major concern for crypto traders. Good enough, that is what the crypto regulations are all about. 

The regulations have provisions for all the service providers. They seek providers to have enough documentation. They must also seek authorization from the relevant regulator before starting operations. 

The service providers must also show the prospects of investor protection. An example is by having reserves. The traders' investments end up secure at all times.

  • Informed Investment Decisions 

The EU regulations are changing the landscape on crypto documentation. Before, projects would pop up without any clear information. For now, the projects and service providers must have detailed whitepapers.

The traders can go through the information before an investment decision. They will only take part in a project when sure of what they are getting into. 

Bottom Line 

The proposed EU regulations are what the crypto traders need now. After investing through the risks, the regulations seek to make investing more secure. It wants to streamline the crypto market for a better trading experience.

It is only a matter of time before the regulations come into practice. It will be the beginning of some of the best developments in the crypto world. Also, it will harmonize all the other state provisions hence a wider market range.

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