Cryptocurrency regulation remains one of the most popular topics in the industry for several reasons. Most critical is that many companies could benefit immensely from what digital assets offer yet seem to still be on the sidelines because there isn't a reliable framework for regulation in the country.
Given how critical it is, regulation continues to stay top on everyone's mind for now. The crypto market is already worth over $2 trillion, and there is so much more potential for growth if the government accepts digital assets over time. With the United States being the most important market, the government's acceptance will go a long way in solidifying the industry's legitimacy.
How Regulation Plays Into the Market
It's easy to see how and why the calls for regulation have grown significantly over the past few years. Everyone understands that cryptocurrencies are a big market, and they are slowly eating into the mainstream financial space.
In many countries, governments are beginning to recognize cryptocurrencies' critical nature and learn more about them. Most of these countries tend to see upticks in crypto activity as soon as their governments show positive attitudes towards crypto assets. It might take a while, but there is hardly any exception to this rule.
Interestingly, regulation can also help with cryptocurrencies' most significant challenge - volatility. Last month, Rebecca Patterson, the Director of Investment Research at Bridgewater Associates, explained that regulatory certainty with Bitcoin could significantly help the asset improve its stability and liquidity levels.
Speaking with Bloomberg, Patterson explained that Bridgewater has been eyeing a Bitcoin move, but volatility concerns have hampered the company so far. She added:
"Right now Bitcoin can move 10% on a tweet, that's not exactly a store of wealth for most institutional investors. So the volatility of Bitcoin is about 10 times that of your dollar; it's still double that of the Venezuelan bolivar. "The more you get a real regulatory ecosystem developing around Bitcoin and other currencies, the more other types of investors are going to be comfortable coming in, that's going to bring liquidity, that's going to reduce the volatility."
Bridgewater is the world's largest hedge fund, with over $150 billion in assets under management. An announcement from the company that it would move into Bitcoin could easily send the asset's price to the moon. Sadly, regulatory uncertainty is hampering the firm from such a move.
Not Much Done Yet
Despite the crypto market's growing status, it is regrettable that the U.S. government has done little to provide regulatory clarity. The Trump administration had four years to produce some form of legislation, but it essentially did nothing. Former Treasury Secretary Steve Mnuchin tried to throw a grenade into the industry last December when the Financial Crimes Enforcement Network (FinCEN) published a rule proposing a restriction on self-hosted wallets.The Biden administration froze the law in its first month.
Now that Biden is in charge, there are renewed hopes that the crypto space will finally get the resolution it deserves. His Treasury Secretary, Janet Yellen, has praised cryptocurrencies and their potential for transforming the American economy. There is also a heightened general knowledge about digital assets on Capitol Hill, with more lawmakers being aware of digital assets and their potential.
Understandably, the Biden administration has not yet gotten around to providing crypto regulations. The government remains concerned about the coronavirus and its many impacts, with a $1.9 trillion relief bill recently being passed to stimulate the economy and provide some help for people whose lives have been affected by the pandemic.
Crypto regulations on their own are no light matter. Any government will have a challenging time providing regulatory clarity for an asset class as broad as this - much less one that has to take on the worst health crisis in a generation from the onset.
No Time to Waste
Despite understanding the lack of pace on the issue, there is still a lot to be hopeful about. As explained earlier, many believe that Yellen should be favorable towards the crypto space - at least, more than Mnuchin was. At the same time, crypto-loving members of Congress should be able to steer the conversation about digital assets in the right direction.
The crypto market has also been making moves. Several companies came together to pool funds for Coin Center, a top crypto advocacy group, earlier this year. Weeks back, Kristin Smith, the head of the Blockchain Association, also told Fox Business that they had been meeting with several top Biden cabinet members on the regulation issue.
Smith pointed out that the Association had met with Yellen and her second-in-command, Wally Adeyemo. She explained that their job is to help the policymakers understand the value of crypto networks and how the financial industry can benefit from these assets.
Ryan Selkis, the head of crypto research firm Messari, also predicted that a fresh wave of regulations could be coming soon. In a tweet, Selkis explained that the government might see the market's growth as a threat and try to control it. Instead of leaving the market to chance, there is a need for effective regulation on all fronts.
Anyone familiar with the crypto industry will know that it has matured significantly since the last bull run - and even the past year. With increased demand from investors and market players, the government can't afford to let the issue of regulation drag on for much longer. Much work has to go into developing progressive regulations, and the time is now to move ahead.