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Pros and Cons of the EU Crypto-Assets Regulation

crypto regulation

October 27, 2020 | 

JOHN K MWANIKI |  0 Comments| 



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Bitcoin and other cryptocurrencies are threatening to take over the financial space. A few years ago, it didn't seem like anything could disrupt the economy this much. The financial sector had its place with governments controlling everything. The government would determine supply and control inflation. Until the digital currencies gained traction in the market. It now seems like the government might lose power, and private entities take over. 

Still, there are concerns with virtual currencies. The decentralization of the coins has seen them used for illegal activities. They are prone to scams and market manipulation. They are also used for money laundering and drug and human trafficking. At the same time, some countries use the cryptos to evade economic sanctions.

These events have prompted the need for cryptocurrency regulations.

The Need for Crypto Regulations

Anything that works correctly doesn't need any regulations. However, that has not been the case with digital currencies. They have come with several concerns. Governments are now prioritizing consumer protection.

There is a need for the government to come in and protect the consumers from losing money to scams. They also have to guard against risks like volatility and any other issue.

The question now is when and how to apply the regulations. The regulations should operate such that it protects consumers without curtailing innovation.

So far, different governments have come up with rules to govern the cryptos. They have provided guidelines on what makes crypto assets and how to handle them. They also control the service providers and issuers.

Other regulations are also coming up. The European Union is at the advanced stages of providing a detailed regulation. The proposal covers a broader perspective with StableCoins, ICOs, and newer inventions.

The crypto world is ever-changing. It means there is a need for flexible regulations to accommodate new developments. It should also provide an enabling environment for these newer assets.

The Pros of the EU Crypto Assets Regulations

1.    Certainty 

Lack of regulations works perfectly for mature industries. At which point everyone knows what to expect. However, crypto assets are still new in the market. The users and the issuers alike don't know what to expect. They don't understand how to relate and even take in newer inventions. That is where the regulations come in.

The first aspect of the EU regulations is defining the crypto assets. It includes the earlier cryptocurrencies and the newer coins. It has together named them crypto-assets. 

With the regulations in place, one knows they are protected. They also understand how to coordinate with the other sectors in the industry. This, in the end, brings the needed consumer confidence.

2.    Attracting Institutional Investors 

Cryptocurrencies have been a preserve of private investors. They are the only ones willing to try out new things. They are also ready to take risks. This is different from institutional investors. Taking unnecessary risks to them can mean so many losses. That has seen most of the institutions not have crypto-assets in their accounts. 

The increasing Initial Coin Offering (ICO) uptake is changing things. Most companies are looking into cryptocurrencies for raising capital. The institutions now have no option but to embrace the cryptos. The regulations make it safer for them. It provides for various provisions for the ICOs to ensure investor protection.

Institutional investors have already shown willingness to join regulated platforms. This is evident by the uptake of the Bitcoin and Ethereum futures. These are traded and regulated like traditional stocks. 

The investors are also taking up other derivatives. They offer cryptocurrency access without the underlying risks. 

3.    Bolster innovation

The continuous innovation is one of the reasons some quarters don't like regulations. Still, regulations are likely to attract more users. The same applies to institutional investors. These users and investors are willing to fund the changes they need in the sector. 

The users will find the sector through various means. They can go through the ICOs or venture capital rounds. This goes a long way in supporting innovation. 

Healthy funding will support developers and technologists to pursue various projects. 

EU regulation has provisions for Startups. While they might be stringent, they ensure prosperity.

The Cons of the EU Crypto Assets Regulations

1.    Reduced Cooperation

The blockchain world is different from the traditional economy due to borderless transactions. The digital currency industry works that assets operate similarly in any country. All one needs is access to the internet. 

The difference would kick in when different jurisdictions come up with their own rules. So far, countries have been coming up with regulations to manage the sector. They are making rules to determine the assets and engagements.

With the rules, different parties can't work together like before. There are several requirements before one can become a service provider. There are also more constraints for cross-border transactions. Still, these are laws to ensure the safety of the users.

2.    Investor Exclusivity 

Before regulations, anyone could take up a crypto commodity. This is different when the laws differentiate various investors. They look for experience and acumen. It only allows accredited investors to take up some tokens while barring others. 

These rules are mostly to protect the less savvy from exploitation. Still, it stops them from gaining as they would. It ends up only letting the already rich to gain even more.

The unaccredited investors missed on many high gaining opportunities as they seek to experience. It ends up as unfair treatment in the long run.

3.    Exclusion of valuable projects 

Regulations have introduced higher barriers for projects joining the market. Even though it improves quality, it also blocks other projects. 

Not all the great projects started top. Ethereum, Ripple, and other digital money were once so low. It took having a chance in the growth market. The same should be allowed for other projects. 

ICOs have also grown due to their simplicity. Several other companies would gain from it. With the regulations, they would find it hard breaking into the market.

The Verdict 

After a period of sustained growth, it's time for virtual currency regulations. They come with both pros and cons for investors to consider. 

Most cons, however, are inconveniences the industry can live with. It's a small price to pay to ensure safety and certainty. In the end, the EU crypto currency regulations are the way to go.

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