The lack of regulation so far may have been a factor in Bitcoin and other cryptocurrencies growing from nothing to a half-a-trillion-dollar industry in less than a decade. Now, however, this explosion in value is being reviewed regulators around the world, as they weigh up options. Ranging from tighter regulatory oversight, to banning cryptocurrencies altogether.
Here are some of the ways regulation may affect cryptocurrencies in 2018.
Regulation in the headlines
News of forthcoming regulations in cryptocurrencies usually hits the price of cryptocurrencies immediately. In the last few months the US, South Korea, and China have considered potential new restrictions and bans. Cryptocurrencies will be a priority at March’s G20 summit.
Why regulation is necessary and inevitable
Governments have a few reasons for regulation. Firstly the cryptocurrency market is now worth hundreds of billions of dollars and the private nature of cryptocurrencies makes them a tempting tool for tax evaders. Governments don’t want to miss out on tax revenue.
Governments also want to protect their citizens. The cryptocurrency world has been described as the Wild West, and the people that get hurt most are regular people. Hacks and sophisticated scams are relatively easy to pull off with cryptocurrencies because of a lack of regulation, and hundreds of millions have been stolen so far. It’s the job of regulators to make sure people are protected.
What regulation means for cryptocurrency
Some crypto-anarchists argue all regulation of cryptocurrencies is bad, however, recognition from regulatory bodies is necessary for the cryptocurrency market to grow. The current environment is too risky for many professional investors to get involved. With legitimate legal frameworks and safeguards in place, larger investment institutions will be more inclined to start investing heavily. When big players enter the market, cryptocurrency prices could rise again.
In the short-term, tighter regulation could bring volatility in the market. A strong force has been the rise of ICOs (Initial Coin Offerings). Thousands of ordinary people shared in the outstanding success of the Ethereum ICO, and this led to an ICO boom with many new companies following suit.
As ICOs use cryptocurrencies like Bitcoin and Ethereum to raise capital instead of cash, the ICO boom has been pushing up prices of those cryptocurrencies. Many companies have received funding not accessible through traditional methods. When regulation finally catches up with the ICO boom, this demand for Bitcoin and Ethereum could slow.
Dangers to look out for
If you’re holding Bitcoin or other cryptocurrencies, 2018 could be a roller-coaster year. News and rumors of all-out cryptocurrency bans, like the ones coming from South Korea, will affect confidence and prices. As ICOs are a major source of demand for the cryptocurrencies, so any news suggesting a crackdown will impact cryptocurrency values in the short-term.
Positives to get excited about
To date, cryptocurrency market has been driven mainly by small, independent investors. For the market to mature on a global scale, regulation needs to occur. Official recognition from the developed countries is necessary for investment in cryptocurrencies to reach the next level, and for Bitcoin prices to rise.
To crash or not to crash?
It seems the only certainty in the cryptocurrency market is volatility. Many factors could trigger massive sell-offs of all the major cryptocurrencies. The cryptocurrency bubble is comparable to the DotCom bubble of the 1990s. Large speculation in ICOs and new blockchain companies pushes up the price of Bitcoin, fueling more speculation. Regulation could break this cycle. Watch this space!