By Sterling Xie
Cryptocurrencies are often criticized for being volatile and a risky investment because of their lack of regulation and the legal gray area they are situated in. This article discusses the potential implementation of regulations and the current state of regulations on cryptocurrency.
Who reserves the right to regulate?
There is already confusion over who should regulate the trade of cryptocurrencies as both the Security and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) lay a claim to it. The SEC, while regulating security assets like stocks and bonds, argues that cryptocurrencies are traded like securities and should be evaluated as such. However, the CFTC evaluates cryptocurrencies as commodities like gold, silver, and oil and claims control over them. This clash makes cryptocurrencies a legal gray area.
In order to fully determine who should actually be regulating cryptocurrencies, there likely needs to be more legislative clarity. Upcoming Supreme Court and District Court hearings will hear more evidence on both sides and provide a more clear-cut conclusion on who should be regulating the market. These hearings would also instill trust in the consumer market that regulations are coming, likely spiking demand for cryptocurrencies. In the long-term as well, this would open cryptocurrencies to more general trading from a larger customer base, also spiking the demand for cryptocurrencies.
Why is regulation necessary?
Regulations would give cryptocurrencies the same things that other commonly traded items have—exchange-traded funds (ETFs) and future contracts. These help speed up the trading process and allow easier access to trade cryptocurrencies. Definitionally, ETFs are types of investment funds like mutual funds, which are used as index funds. However, while mutual funds can be bought and sold by the issuer at the end of a trading day, ETFs can be bought and sold from individual owners throughout the day. ETFs allow a broader audience to trade cryptocurrencies. Definitionally, future contracts are a contractual obligation between a seller and buyer that a good will be sold at a predetermined time at a certain price. This would provide the certainty that is often seen in the stock market that you will be able to purchase cryptocurrencies as soon as they hit a certain limit, making trading cryptocurrencies easier.
Regulations would decrease price volatility by instilling limits on the business practices of different cryptocurrencies. This would expand the market and further stabilize cryptocurrencies.
What does this mean for personal finance?
Before the Supreme Court cases finish their hearings, it may be time to invest in cryptocurrencies and hedge your bets on the viability of regulatory clarity for cryptocurrencies and the expansion of the market.