In just a few years cryptocurrencies went from being unnoticed in financial market activity to an asset class of several hundred billion dollars traded on various platforms and even owned by institutional investors. Bitcoin and Ethereum led the way to hundreds of new cryptocurrencies being created. The year 2017 was an exciting year those who invested in cryptocurrencies and capitalized on unimaginable gains. Recently, however there have been concerns over the lack of regulation of these cryptocurrencies. US Treasury Secretary Steve Mnuchin expressed concern of possible criminal activity among cryptos and other leading US financial regulators voiced worries of possible fraud. There are several very good reasons that cryptocurrencies should have similar regulations placed on them as other securities already have.
Increased Volatility Due to Uncertainty
The huge price swings in the cryptocurrencies have driven some to say that crypto pricing is too illogical. One could argue that regulatory uncertainty is somewhat responsible for the volatility levels in the crypto space. Due to cryptocurrencies being new, their market value moves very erratically to essential information.
Subtle hints and announcements of possible regulatory policy dramatically affect the cryptocurrency prices. When there were reports coming in about regulators in China shutting down the cryptocurrency exchanges, bitcoin took a ten percent nose-dive in one day. An official announcement in China five months later caused a decline of equal proportions.
Some handlers of cryptocurrencies viewed them as ordinary currencies or other tradable investments. Many individuals did not research the coin before buying or using the coins. When these persons lack experience, people with ill-intent take advantage by creating and selling tokens with no fundamental commercial purpose. The result is that the retail buyer is almost guaranteed to lose their money.
It is tough to control who possesses the private keys of the token. People with fantastic technology skills can sometimes discover the identities of the individual key holders. Also, individuals who wish to engage in illegal activity have begun using cryptos for their illegal deals. The privacy offered by many of these cryptocurrencies allow criminals to conduct their illicit activities with greater chance of avoiding detection by the authorities.
Cryptocurrencies are a promising innovative technology, but it is the duty of the policymakers to protect individuals from the possible harm that could occur to the retail buyer. Adding necessary regulation similar to that of other trade-able securities would eliminate the fraud, illegal activity and unnecessary volatile currently associated with the cryptocurrencies. It would also guarantee that the technology associated with cryptocurrencies will survive to bring the benefits that people believe are in store with this impressive new asset class.