July 26, 2023
Author Nathan Tam

Navigating the Crypto Landscape: 6 Ways Global Regulations Could Change the Game

A law book

1. Enhanced Credibility

Global regulation could legitimize digital currencies and bestow upon them greater credibility in the eyes of institutional investors and governments. Regulations could also offer consumer protection, ensuring users are not exposed to fraudulent activities or scams. Moreover, these regulations might prevent money laundering and other financial crimes by requiring cryptocurrency exchanges to adhere to the same anti-money laundering (AML) and know-your-customer (KYC) requirements that banks must follow.

As the cryptocurrency industry developed, it became apparent that the absence of regulations was both a blessing and a curse. Without any restrictions, there is no binding agreement among countries to follow certain standards, leading to inconsistent rules and policies across borders. This has led to the downfall of major exchanges and even the disappearance of certain digital currency projects. Better checks and balances could greatly reduce the prospect of fraud and other financial crimes.


2. Increased Costs and Slower Onboarding

Aside from the benefits that global regulations might offer, there are also potential drawbacks. One of the most obvious is the increased costs associated with compliance. If a cryptocurrency exchange or other business must follow certain rules and regulations, it may need to hire additional personnel or invest in new technology to ensure compliance. This could result in higher operational costs and potentially make it more challenging for small businesses to enter the market.

New cryptocurrencies might also face a more tedious onboarding process to meet all requirements of various regulatory frameworks. This could slow down the development and roll-out of new digital coins. Furthermore, some countries might choose to ban certain cryptocurrencies or related activities entirely, further reducing the available options for users. Governments must carefully weigh the balance of regulation, innovation, and user protection.


3. Potential Influx of Institutional Investment

With improved regulatory clarity, institutional investors could be more inclined to enter the cryptocurrency market. This could introduce significant capital into the industry, potentially leading to higher prices for digital assets. An influx of institutional investors could also increase market liquidity, making it easier for users to buy and sell cryptocurrencies without significant price swings.

Cryptocurrencies may be on the watchlist of many individuals but are yet to be accepted by mainstream institutions. Global regulations could bridge the gap between traditional finance and digital assets, creating more opportunities for investors, developers, and cryptocurrency users alike.


4. Reduced Liquidity

Another potential downside is that global regulations could decrease the overall liquidity of cryptocurrencies. If rules and restrictions are in place, it may be more difficult for traders to buy and sell digital assets, leading to lower trading volumes and larger spreads between bid and ask prices. This could make digital currencies less attractive to investors, resulting in reduced market liquidity.

Despite the potential inflow of new capital from institutional investors, global regulations could still negatively impact the overall volume of digital currencies. The ease of transferability and low transaction costs are among the most attractive features of digital coins, and these could be compromised if governments decide to impose strict regulations.


5. Diminished Privacy

Global regulations might also diminish the privacy of cryptocurrency users. Governments would likely require exchanges to collect detailed information about their customers, such as name, address, and financial data, to comply with AML/KYC requirements. This could result in a situation where individuals might lose their anonymity while using digital currencies, potentially causing some users to exit the market.

Privacy coins have already sought to address certain concerns regarding anonymity, but these might soon become obsolete if global regulations are implemented. Furthermore, governments might decide to employ intrusive measures such as “blacklisting” certain cryptocurrency addresses, leading to further erosion of user privacy.


6. Reduction of Scams

Finally, global regulation could help reduce the number of scams in the cryptocurrency industry. If exchanges and other businesses are required to follow specific rules and regulations, it would be much harder for fraudulent actors to exploit unsuspecting victims. This could create a safer environment for investors and help restore trust in the market.

From market manipulation to rug pulls, global regulations could help protect consumers and ensure that the industry remains transparent and secure. By reducing the risk of financial crimes and providing enhanced consumer protection, global regulations could be a net positive for the cryptocurrency industry. This factor alone is a compelling reason to welcome the development of regulations in this space.”