Written by Sterling Xie. Edited by Swastik Patel.
As a rising market, cryptocurrencies have often lacked strict and definite regulation, making investment in the market uncertain. This article offers better definitions on the strengths and drawbacks of cryptocurrency regulation.
Who should regulate?
Right off the bat, there’s concerns as to who should regulate the cryptocurrency market—the Securities and Exchange Commission (SEC) or the Commodity Futures Trading Commission (CFTC)? The SEC regulates securities like stocks and bonds and claims cryptocurrencies are traded like securities and therefore are securities, so under their regulation. However, the CFTC maintains that cryptocurrencies are used like commodities like gold, oil, or silver and therefore should be under their control.
There is likely to be more legislative and regulatory clarity as to who is regulating the cryptocurrency industry in the near future with upcoming Supreme Court and District Court hearings. These hearings would also open the door to cryptocurrencies for a more general customer base by instilling trust in the industry, thereby increasing demand for cryptocurrencies. This would also increase the value of cryptocurrencies. However, right now, cryptocurrencies are in a regulatory gray area. Both the CFTC and SEC continue to claim regulatory authority over cryptocurrencies and do not have aligning regulations. As such, there is no clear cut way to enforce cryptocurrency trading regulation.
Why do we need regulation?
Regulation is important to create easier methods to trade cryptocurrencies. Regulation would create exchange-traded funds (ETFs) and future contracts which would simplify and expedite trading processes. ETFs are a type of investment fund much like mutual funds, which are index funds. The difference is that mutual funds are bought and sold from the issuer at the end of a day’s trading whereas ETFs can be bought and sold throughout the day from other owners. ETFs open the door for a larger audience and more consumer interest. Future contracts are contracts between a buyer and seller that a certain good is going to be sold at a certain price at a predetermined time. This would also expand the investor base for cryptocurrency because it ensures more stability and certainty in trading decisions and offers parallels to the stock market.
Regulations in general would decrease price volatility by offering investors more definite capabilities in shorting cryptocurrency or betting against certain cryptocurrencies. The more diverse capabilities offered by increased regulation could offer a lot more investment opportunities and a boom in the cryptocurrency market.
Certainly, we are not sure of what, if any, regulation will be passed and the entire future of cryptocurrency is uncertain. However, what is certain is that cryptocurrency is going to be with us for a long time and regulatory bodies for it will eventually be established.