Regulation is one of the factors that has been linked to the unprecedented plunge of Bitcoin prices since December of last year. However, Bitcoin, the biggest cryptocurrency by price and market cap, is expected to gradually bounce back.
Growth in the cryptocurrency industry has largely been spontaneous, generating mixed reactions on its sustainability. By the end of this year, the crypto market cap is predicted to reach $1 trillion. According to experts, this will only be achieved if a proper regulatory framework is put in place.
It is in this spirit that the Japanese regulator, Financial Service Agency (FSA), along with the U.S. Securities and Exchange Commission (SEC) are cracking down on unregulated crypto exchanges.
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The ongoing crackdowns and warnings by financial watchdogs in the U.S. and Japan are good for the industry. In the coming months, other countries are likely to follow suit because crypto exchanges are well on their way to becoming mainstream and the need for a regulated market is inevitable.
This can only be achieved if regulators formulate proper policies and legislations to protect both businesses and investors, as well as create revenue collection model. Some cryptocurrency exchanges may also be targeted for taking advantage of the unregulated market or crypto-friendly environment to defraud investors or finance illegal activities such as terrorism.
In Japan, the FSA targeted crypto exchanges that did not adhere to minimum security and money-laundering requirements to guarantee protection of investor money and personal information.
Tom Meredith, CEO at BitMinutes says, “Given the experiences that multiple business entities like Equifax and large retailers have had with hacks and thefts of customer data, we have to note that managing cyber-risks is not unique to the ICO market. When someone’s personal information is stolen, such as a social security number in the U.S., the damage to the individual can be far greater than the loss of a cryptocurrency they may have purchased.”
Long Term Benefits
The cryptocurrency market cap is gradually rising gradually and more people are showing interest in crypto-related investments. The industry is potentially poised for tremendous growth in the coming years.
To realize better rewards, it is critical that crypto businesses comply with the regulations and guidelines that governments and regulatory agencies have in place. According to Steve Kuh, founder and CTO of Group Project, crypto exchanges will become a critical source of revenue for governments.
He says, “We will see more government involvement with crypto exchanges as they provide a huge opportunity for the government to collect tax revenue. Although this might seem counterintuitive for cryptos, I think it is good for the industry that exchanges are regulated. Ultimately, it will create stronger exchanges that can guard against thefts that seem to plague the coin exchanges and boost confidence for many investors who are on the fence. It should be regulated, insured even, and offer some assurances that no hack would cause loss of coin properties.”
On his part, Jose Merino, Chairman of SID Limited supports crypto exchange crackdown and sees it as a way to separate compliant exchanges from non-compliant ones.
He says, “It would be nice if those ones with good governance & track record be praised, such that the market can auto adjust by companies shying away from those non-compliant exchanges to those who do. That said some basic clear and simple regulation globally is likely to come along. Hopefully the expected crypto exchanges guidelines or regulations are similar across the globe, as not to affect certain regions negatively and provoke massive wealth movement or concentration, because healthy crypto exchanges competition is what benefits users in the end.”
Crackdowns will make crypto exchanges more transparent and valuable. As a result, we are likely to see investors starting to prefer exchanges that have fulfilled all security and regulatory requirements and hold the right licenses. This is definitely a good step towards protecting investors and traders against manipulative practices and fraud.
Article by David Drake
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.