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Regulation is the enforcement of rules by the government or key agencies which attract certain penalties when disobeyed. They are often backed by the use of penalties because they are intended to adjust the economic behavior of the individuals and firms that they govern.
There are several regulatory instruments or tools that exist that are used by economic and social authorities. Some of them include taxes, rate of return (in the form of profits, margins, or commissions), and disclosure of assets, among others.
As the acceptance of cryptocurrencies keeps increasing, there is a reason for caution in the form of regulations to manage it appropriately. Apart from the fact that the market is extremely volatile, there are several instances in which these assets are used to commit fraud and money laundering.
The purpose of financial regulation in crypto is to protect investors, prevent fraudulent activities in the crypto space, provide clear guidance on how companies can operate in the ecosystem, and address environmental concerns related to crypto mining.
However regulation needs to strike the right balance to achieve these. Strict regulation on crypto might make it difficult to engage with cryptocurrency, which could affect its increased adoption. Hence, the kind of regulation that government agencies propose will eventually have a big effect on crypto investors and companies building out the future of the industry.
Due to the fact that there is a regulatory framework for the stocks and securities market, some market participants desire something similar for cryptocurrencies. At the same time, other market participants fear that regulation could become restrictive and hinder innovation.
Despite the large acceptance of cryptocurrencies by many investors, there are still some investors who still have concerns about crypto investments. Industry experts say crypto regulation could create more trust in crypto for crypto skeptics.
In addition, cryptocurrencies will no longer be a trend that will end up going away, but they will likely become a very significant part of the future of finance in many countries.
Some regulators do not want to hinder innovation in the crypto space and eliminate the opportunities that cryptocurrencies could play in economic development. Hence, they have been working hard for a few years to create a legal framework that is accommodative but cautious.
Such regulations introduced defining token types and use, figuring out how they fit into existing law, and formulating a licensing structure for crypto businesses. Recently, the U.S Internal Revenue Service (IRS) ruled that digital or virtual currency transactions are taxable, similar to transactions on any other property.
Several other countries have taken steps in regulating the use of cryptocurrencies and this has been seen as an important next step for the growing crypto economy. If there is a balanced regulatory regime in place, cryptocurrency and digital assets could begin to gain mainstream adoption.
This will make Bitcoin, ETH, and other cryptocurrencies and nonfungible tokens become a part of several investors’ long-term strategies.