Order inspires trust. The TerraLuna disaster, and the many individual tragedies it may have caused, have put cryptocurrencies back in the sights of regulators. Europe, United States, United Kingdom, the financial police have (re)seized the subject. For some, regulation is not a good thing. For others, regulation could bring to cryptocurrencies the order they lack so much to attract massive flows of capital.
Let’s look at 6 areas where clearer laws could help in the mass adoption of Bitcoin and altcoins.
What can regulation do for cryptocurrency markets?
As long as Bitcoin and altcoins enjoyed modest valuations, they weren’t just another sub-niche of investing. But when Tether’s USDT and Circle’s USDC began to overtake PayPal’s volumes, cryptos started to look like weapons (against traditional currencies). Cryptocurrency regulation is a long sea serpent that never ends, but it can break down several barriers that have kept cryptos on the margins so far.
1. Regulation makes it easier to categorize and understand virtual assets
In Europe as in the United States, the existing regulatory frameworks create a feeling of insecurity over crypto projects. Financial securities (“securities”)? Raw materials (“commodities”)? The SEC’s almost wet-finger methods of categorizing crypto projects deters many venture capitalists from investing in promising niches.
In Europe, crypto-friendly financial institutions and banks are even rarer than across the Atlantic. The main response to customers and investors is thelegal uncertainty that surrounds virtual assets. Let’s not forget that bank branch managers are criminally liable actions of their clients. Their conservatism towards cryptos is understandable.
It is only with clearer guidelines that financial institutions can begin to clarify the gray areas. Starting by classifying the assets with a view to long-term investment, and according to their legal status. This helps financial institutions to better cover their risks by anticipating the insurance to be put in place, the contractual clauses with their customers and the relationship with the regulator.
2. Regulation will herald the arrival of institutional capital
In the current circumstances, investment funds do not clearly understand the landscape in which they should manage this new asset class. Even less the risks associated with it. However, without understanding, there can be no active promotion to their investor clients, except to expose themselves to unprecedented regulatory risks.
Blockchain analytics companies (ConsenSys, Messari, OtterSec) do an admirable job of tracking the movement of funds when a hack occurs, but that’s not enough. Financial institutions cannot operate and create financial instruments in a market where they cannot clearly determine the origins and verify the legality of the underlying assets.
Let’s take an example : if a bank sells BTC to a client, which are then linked to a hack of a platform, it exposes itself to a penal procedure or at least one class action.
3. Regulation will allow accurate valuation of cryptos
The high prices achieved by bitcoin are not necessarily a good thing.
The 2020-2021 bull run ended with a heavy price drop in which retail investors suffered massive losses due to overvaluation, market manipulation and fragile ecosystems (Terra).
The class action lawsuit against Tether (USDT issuer) for example highlighted a probable issuance of millions of uncollateralized USDT to push the price of BTC upwards, and allow the sister platform Bitfinex to get rich along the way.
A regulated and monitored market, where real identities can be linked to an actor, creates a more level playing field. False buy and sell orders (the famous “wash trading”), spoofing and other manipulation practices well known to crypto traders will be more difficult to implement.
4. Regulation will help transform Bitcoin from a purely speculative asset to a usable asset
Companies embarking on internal blockchain projects often fear a backlash from regulators. According to the mood swings of the authorities, large groups do not go beyond the stage of pilot programs and tests “sandbox” to offer personalized solutions to problems that may represent a market.
This is the case of crypto payments. This is often one of the first questions asked by the “uninitiated”: what can you buy with cryptocurrencies? So far, not much. The announcements of large groups follow one another in this area (from Tesla to Microsoft, via Starbucks and Burger King), but the reluctance remains in place.
If payment is considered a major issue in the development of cryptos, it is still in its infancy. The few businesses that have announced that they accept this method of payment, such as the jeweler Courbet from 2020 where the Beaugrenelle shopping center in Paris last June, thus carried out attractive marketing stunts… but the commercial success was however not necessarily there.
They use a third party to perform an immediate conversion to have a fiat flow (in fiat currency, editor’s note): BitPay, Bitcoin Commerce, UTrust (bought by Elrond), …
The current lack of regulation limits the use cases for most current cryptocurrencies to being primarily theoretical. Big companies are afraid to implement virtual assets in their operations, fearing to attract the wrath of regulators.
5. Regulation will make crypto-asset ownership safer
The expected influx of financial institutions into a regulated cryptosphere is expected to lead to a massive influx of personalities and academic research resources on the sector.
The same for professionals in the structuring of investment products and of cybersecurity. Clearly, an even greater professionalization.
Compliance and risk control are much more mature and sophisticated in traditional finance, and there is no shortage of anti-money laundering companies that crypto platforms can consult to identify bad actors in the world. .
Blockchain players have their say
We recently reported to you the creation by Binance of one new Web3 think tank to get closer to regulators. before her, Coinbase also launched in 2020 a think tank responsible for influencing (future) regulations American, still in the making.
Everyone agrees that regulators are the guardians of mass adoption. If we want the crypto market to become a nimble-footed giant, virtual assets like Bitcoin need to be seen as secure, easy to use, and available globally.
Regulation is key to bringing order to the Far West what happened to the cryptosphere? Regulation shouldn’t be the death knell for cryptos, it should be the beginning of it.
Note, finally, that almost all shots pump of Bitcoin since 2018 can be linked to events that signaled a wider adoption of bitcoin : its categorization by the CFTC as a commodity (“commodity”), the launch of a forward contract on the Chicago Mercantile Exchangethe launch of premier ETF based on a derivative of Bitcoin (the BITO), the launch of Libra of Facebook, the arrival of BlackRock … Soon the arrival of clearer regulations in this list?