The impact of regulation on cryptocurrency trading
In recent years, the world of cryptocurrency has recorded rapid growth and evolution. With the advent of decentralized cryptocurrencies such as Bitcoin and Ethereum, many people have exploited the potential for high yields through the trade of these digital activities. However, with the growing popularity of the cryptocurrency, a growing concern for regulation arrives. In this article, we will explore the impact of the regulation on the cryptocurrency trade and examine the current regulatory panorama in various jurisdictions.
Regulatory environment
The regulatory environment surrounding the cryptocurrency is complex and constantly evolving. In 2017, the cryptocurrency market recorded a significant increase in popularity, with many new investors who enter the scene. However, as the market grew, also concerns about the risks for safety, volatility and illegal activities. Regulators around the world responded to these concerns by introducing regulations aimed at curbing the use of cryptocurrencies for illegal purposes.
types of regulations
There are different types of regulations that influence cryptocurrency trading, including:
- Anti-Money Laundering (AML) : AML regulations require exchanges and other financial institutions to verify the identity of their customers and report suspicious transactions to the regulatory authorities.
- Know your client (Kyc) : Kyci regulations require exchanges to verify the identity of their customers and store customer data in the archive for a specified period.
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Impact on cryptocurrency trading
The impact of the regulation on cryptocurrency trading varies according to the specific regulations implemented in each jurisdiction. Some countries have adopted a more relaxed approach, while others have introduced more severe regulations that have had a significant impact on the market.
Positive impacts
Regulations can also provide a positive impact on cryptocurrency trading from:
- Increase in safety
: regulations such as AML and Kyco help to prevent money laundering and other illegal activities.
- Stabilizing markets : regulations such as capital requirements can help stabilize markets by preventing excessive speculation.
- Improvement of consumer protection : regulations such as AML and Kyc provide consumers with greater protection against scams and phishing attacks.
negative impacts
Regulations can also have negative impacts on cryptocurrency trading, including:
- Restrictions on trading : some regulations limit the ability to exchange cryptocurrencies, such as requesting a license or register for an account.
- Increase in cost : regulations can increase costs for exchanges and other companies operating in regulated markets.
- Limited availability of services : regulated services such as custody wallets can be limited or not available due to severe regulatory requirements.
Jurisdictional variations
The regulations relating to the cryptocurrency trade vary significantly from jurisdiction to jurisdiction. Some countries have adopted a more relaxed approach, while others have introduced more severe regulations that can have a significant impact on the market.
United States: a mixture
The United States were at the forefront of the regulation in the cryptocurrency space. In 2017, the Coin Act prohibited the promotion of cryptocurrencies as an investment opportunity and in 2020 the century issued an orientation document that outlined its regulatory position on digital activities.