2017 has been dubbed the year of cryptocurrencies. The rather phenomenal increase in prices saw individuals, institutions, and governments turn their eyes to cryptos. For the latter, we all know what happens when government agencies give attention to businesses – monitoring, sanctions, fines, and taxes. The bottom line is, governments are stepping into the crypto space and regulations are already becoming a part of the market. In this article, I share my personal experience on crypto regulations and how (I think) they affect the market.
Nothing strikes fear into the hearts of crypto traders than the mention of governments stepping in with regulations. For example, late last year the crypto space reacted to rumors of South Korea banning cryptocurrencies. Unfortunately, the R-word has been used a lot in the past few months, as governments work towards taming this largely unregulated market by instituting “Know Your Customer” (KYC) laws, taxes, spending and transfer laws, and in severe cases, out rightly banning digital assets.
Taking the US as an example, even though some states have passed bills supporting cryptocurrencies, the general legal status of cryptos in the country is not yet clear. The Commodity Futures Trading Commission (CFTC) considers them a commodity, the Securities and Exchange Commission (SEC) thinks of cryptos as securities, they are viewed as properties and money laundering threats by the Internal Revenue Service (IRS) and US Department of Treasury, respectively.
According to Steve Mnuchin, the US Department of the Treasury secretary, “My number-one focus on cryptocurrencies, whether that be digital currencies or bitcoin or other things, is that we want to make sure that they’re not used for illicit activities.” From this, it is clear that governments are more interested in a saner crypto market free from scammers and terrorists.
In general, US based platforms and exchanges must now comply with AML and KYC laws. They are saddled with the responsibility of reporting any suspicious activity.
Now let’s delve in and look at how regulations may affect the crypto space.
The price of a coin is arguably the most important aspect of that coin (after all, nobody is out to lose money). The cryptocurrency space is quite volatile and news of regulation always influences the market. A positive news will cause an upward trend, and a negative news could cause the market to crash as can be seen in the case of China and South Korea.
I have followed quite a number of ICOs and I have noticed that some coin offerings have country restrictions. This is as a result of regulations. In most of these ICO options, residents of USA are not allowed to participate.
KYC and AML are now part of the user onboarding process in a lot of exchange. While this may seem like a bad thing, considering the fact that your identity as a user may no longer be anonymous, having regulations that require exchanges to know who their customers are, will open the door to institutional investors, as well as skeptical persons.
In conclusion, the crypto market is still at its infancy stage, and many of these regulations are only months old and their long-term impacts hazy. Even though there is the potential that regulations could lead to a more stable market in the future, there are still a lot of questions surrounding what effective regulations are, and to what degree they will influence the market.