The incredible rollercoaster rallying and fall of cryptocurrency prices in 2018 and the growing popularity of different types of cryptocurrency has finally — it seems — caught the notice of regulators.
Here’s the thing though, cryptocurrency is not centrally regulated by any government, so every government is taking different approaches to regulating Bitcoin and other cryptocurrencies.
There are several areas of regulation that look like they’re coming pretty quickly. These include reporting for tax purposes and regulating initial coin offerings the way that securities are regulated.
Even though the actual buying and selling of cryptocurrency with blockchain technology are extremely secure, humans are involved in the trading, the exchanges, and the initial offerings. That means that fraud is already happening.
New Bitcoin regulations have the power to change the cryptocurrency market. But most analysts think that that’s going to be in a good way — at least over the course of time. Let’s take a look at what’s going on now what may happen in the future.
- Taxation and initial coin offerings (ICOs) are two areas of potential regulatory opportunity in the cryptocurrency market.
- Regulations could make the cryptocurrency market less susceptible to manipulation, and this could increase the value of cryptocurrencies.
- With or without regulation, the cryptocurrency market will remain wildly speculative, and investors should carefully consider their investment goals and risk tolerance before entering a cryptocurrency position.
How Can Bitcoin Regulations Change the Market?
In the short term, regulations can suppress the trading values of cryptocurrency. But in the long term, it’s expected that regulations if done properly, will stabilize the market and make it a safer investment.
The SEC is looking at regulating ICOs as securities and is cracking down on fraud.
Will Bitcoin Regulation Make the Market Safer?
Bitcoin regulation has the potential to make the market much safer. It will still likely be a risky investment, but with protections for investors, it’s less likely that the market will be able to face as much outside manipulation.
Overall, this is a good thing for people who want to invest in cryptocurrency. Safer markets mean more public confidences, which often means prices go up over time.
Areas of Bitcoin and Cryptocurrency That Should Be Regulated
Right now, regulators seem to be focusing on two specific areas. These are taxation reporting and Initial Coin Offerings (ICOs).
Capital gains from crypto earnings are underreported. This is obviously an area of concern for taxing authorities like the IRS. And the IRS is beginning to take action. They have already collected 14,000 Coinbase (the most popular crypto wallet) account users activity logs. That means the IRS is looking into the earnings of people trading cryptocurrency. In 2019, the IRS added a line to the Form 1040 asking if a taxpayer had made money through virtual currency.
So if you do earn in the crypto markets you may want to declare those earnings before the IRS declares them for you.
The other area of concern seems to be ICOs. These are when new cryptocurrencies are treated as securities. And the SEC feels like they should come under securities regulations.
It seems like that’s mostly all that’s happening at this point in time because regulators are trying to catch up.
What Should Investors Know Before Investing in Cryptocurrency?
Cryptocurrency can be very sexy. It is reminiscent of the early days of the Internet when everyone was dumping money in without any real idea of what they’re doing. Because of the volatile nature of cryptocurrency, it’s important to understand your risk.
It’s a good idea to ask if investing in Bitcoin or other cryptocurrency is a good fit for you and if you’re ready to lose your money. That sounds harsh, but it’s true.
There are tons of upside potentials to cryptocurrency, but the reality is it can all be lost instantly through cybercrime or devaluation.
Cryptocurrency also is very much like a roller coaster. If you enjoy the adrenaline rush and have a high-risk tolerance then it may be a good idea for you to invest in. And remember that the term "invest" here is being used loosely. Cryptocurrencies are wildly speculative — a lot like a casino is speculative.
How Introduction of Regulation Is Impacting Bitcoin’s Share Price
Surprisingly enough, cryptocurrency and Bitcoin regulation doesn’t seem to be impacting the share price all that much. We have seen some dips when a new regulatory item comes out, but normally the price is going back up again.
The big thing to remember about crypto is that it is risky, as regulatory bodies come in to put in place consumer protection that may become less so, but right now it’s still very much a speculative venture.