What Does Greater Regulation Mean For Cryptocurrency Markets?

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The second quarter of 2021 was dominated by headlines related to cryptocurrency regulation, a development that eventually led to a temporary peak in Bitcoin and other major altcoins. Valuations tumbled by over 50%, showing the elevated volatility continues to put a dent on the long-term trust in digital assets and now the market expects to see whether regulation will eventually be implemented.

China to maintain tight crypto regulation

One of the countries that continue to keep a tight grip on cryptocurrency activity is China. According to the People’s Bank of China, the institution will supervise financial platform companies to rectify their practices in line with the law, as a recent Bloomberg article stated.

At the same time, a financial stability law proposed by Deputy Governor Liu Guiping back in March could be soon implemented, given the central bank wants to prevent major financial risks. China has begun cracking down on crypto-related companies since 2017, yet in 2021 more pressure on miners and usage of cryptocurrencies has been noticed.

Europe wants to move in this front

A rapidly expanding crypto market is not favorable for European regulators as well, which are now asking for stricter rules across the EU, in order to prevent the appearance of crypto havens. French regulators proposed a wide range of reforms, including giving greater powers to the European Securities and Markets Authority (ESMA), the EU’s financial supervisory body.

Although elevated volatility comes in hand with risks, retail traders continue to get involved in the market using derivatives based on cryptocurrency prices. Popular brokerage houses offer regulated instruments such as CFDs and enable their customers to buy or sell crypto contracts, without having to work with exchanges. Europe is among the largest markets as the public shows openness towards digital assets in general.

US SEC  wants robust regulation

Gary Gensler, chairman of the United States Securities and Exchange Commission recently mentioned the desire to install safeguards for crypto investors operating within the country.

“If someone wants to speculate, that’s their choice, but we have a role as a nation to protect those investors against fraud”

There are seven crypto-related policy changes currently examined by the SEC, including token offerings, DeFi, stablecoins, custody, ETFs, and lending platforms. However, even though the chairman expressed these views, a full pack of cryptocurrency regulations in the USA is not expected in the near term, keeping the uncertainty elevated and investors on their heels.

How will crypto prices perform?

Until more clarity will be available on the regulatory front, cryptocurrency investors and traders will have a reason for worry. Although the views are different globally, most governments are not fancying the idea of decentralized money.

Bitcoin and its peer could continue to trade in narrow ranges during the summer, given the seasonality is not favorable in this period. August is a month of vacation and the activity in the broad financial markets is rather muted. Traders might have to wait until September for more solid price action signals.

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