Here’s Why The Crypto Space Should Be Regulated By The Government

The cryptocurrency space has recently witnessed a steady influx of government regulations all around the world. The belief that the cryptocurrency market was above regulation and could not be regulated by the government appears to be fading as more countries become proactive.

For different reasons, governments have woken up from a supposed slumber to start regulating this sector. This is attributable to the growing number of reported cases of individuals and organizations losing money to scam blockchain-crypto projects, and allegations of the cryptocurrencies being used for criminal activities such as terrorism and money laundering.

An alternative financial system—Decentralized Finance—devoid of centralization- has been created on the blockchain. Some countries are enacting regulations to protect their economic sectors from the effects of decentralization, which is prevalent in the crypto space.

Some countries have enacted legislation to generate revenue from crypto-related activities through crypto taxation. The calls for more stringent regulatory efforts by governments can also be linked to illegal activities observed in the crypto space.

This article comprehensively examines the need and reasons for government regulation in the crypto space.

Why Should the Cryptocurrency Space Be Regulated?

There are several reasons why the cryptocurrency space should be regulated, some of which will be discussed below.

To curb illegal activities

Although the crypto space is filled with innovative solutions, some unscrupulous agents use the technology to engage in illegal activities.

Some people have used cryptocurrency to fund illegal activities such as money laundering and terrorism. There have been reports of people losing money due to fraudulent cryptocurrency platforms.

Some cryptocurrency platforms are designed to fleece people of their money. In some cases, scammers may clone the apps of reputable crypto platforms and use them to steal funds from unsuspecting victims.

Insider trading is another common issue that is seen in the crypto space. This has led to an increase in calls for government regulations. Crypto regulation reduces illegal activities in the crypto space, as organizations must register with the authorities and meet specific criteria before being cleared to operate. It also promotes the incorporation of the Know Your Customer (KYC) process into activities on crypto platforms.

Improved Investor Protection and Confidence

In contrast to traditional finance, users have little or no protection in the crypto market. For example, the Central Bank of Nigeria requires banks to obtain insurance coverage through the Nigeria Deposit Insurance Corporation in order to provide users with some level of protection.

This is not common in the cryptocurrency space. Governments must step up regulatory efforts to better protect individuals who use crypto platforms.

Improved Stability

The cryptocurrency market is volatile and full of speculative activity. Investor confidence will rise as speculative activity declines. Government regulation of the crypto industry makes the market much more stable, reducing cryptocurrency speculation. The average traditional financial investor will be inclined to participate in crypto activities if the market remains stable.

Examples of Crypto Regulations Around the World?

Different countries have different regulations regarding the use of cryptocurrencies. Some countries, such as China, have prohibited the use of cryptocurrency. Crypto mining is illegal in some countries, while it is taxed in others.

Crypto taxation is another aspect of crypto regulation, as some countries require their residents to pay a form of tax, such as Capital Gains Tax, on their crypto holdings.

The type of tax required varies depending on the region. It is best to consult with legal and financial professionals before holding or using cryptocurrencies in a region.

Many countries require crypto platforms to be registered before operating within their borders. This is a common cryptocurrency regulation in many countries. Typically, this is linked to the government’s requirement that crypto firms request proof of identification from potential users before allowing them to use their services.

United States

The US SEC has been actively monitoring the activities of crypto firms in the United States. Organizations are expected to register with the US SEC and seek approval before they release any instrument or asset that resembles security in the country.

Crypto organizations found wanting by the US SEC are usually fined. For example, BlockFi agreed to pay $100 million in fines for failing to register its lending products with the authorities, particularly its Blockfi Interest Accounts (BIAs).

The US SEC frequently launches investigations into the activities of crypto companies and people of interest linked to some alleged illegal activities. For instance, the US SEC is investigating the founder of Terra Network, Do Kwon, for his involvement in the failed Terra ecosystem.

Nigeria

Crypto usage is not illegal in Nigeria, but residents are not permitted to use traditional banking infrastructure to purchase or trade cryptocurrencies. Banks are prohibited from allowing their customers to use any of their infrastructures to engage in crypto-related activities.

This means that, under the CBN ban, individuals are not allowed to use their debit or credit cards to purchase cryptocurrencies on crypto exchanges or platforms. They are also prohibited from receiving payment from a crypto platform via their bank accounts. Failure to comply may lead to the closure of their bank accounts.

The CBN fined some banks for violating the orders to demonstrate how serious this is. Stanbic Bank was fined N200 million, while Access Bank was fined ₦500 million. Fidelity Bank was slated to pay ₦14.3 million, and UBA was fined ₦100 million.

Another regulatory body in Nigeria has taken an alternative action plan in regulating cryptocurrencies. The Nigerian Securities Exchange Commission (SEC) published a rule book containing new guidelines for the issuance, exchange, and custody of digital assets in Nigeria. Organizations are expected to register with the Nigerian SEC before offering crypto services in Nigeria.

India

India is known for its ostensibly stringent crypto taxation system. According to reports, Finance Minister Nirmala Sitharaman declared in the Union Budget 2022, presented on February 1, that “any income from virtual or digital assets would be taxed at 30%.

This includes cryptocurrencies and other popular types of virtual assets. In addition, a 1% TDS (tax-deductible at source) will be applied to all cryptocurrency transactions. As a result, effective from April 1, India will treat cryptocurrency revenue in the same way it does lottery winnings, which are taxed at 31.2%.”

China

China notably placed an outright ban on crypto activities in 2021. Crypto mining is banned in the country, and crypto firms are now allowed to operate in the region. The government has placed a blanket ban that covers every crypto-related activity, unlike the last one that focused mainly on mining.

The Chinese authorities installed an Internet firewall to prevent residents from accessing major cryptocurrency-related websites.

Crypto platforms are not allowed to cater to Chinese residents. Flouting the ban on cryptocurrencies comes with stringent penalties.

A senior Chinese official was penalized for flouting the regulations. Xiao Yi, the former vice-chairman of the Chinese People’s Political Consultative Conference of Jiangxi Province, was said to have illegally helped companies involved in crypto mining circumvent the law.

In Conclusion,

Despite widespread adoption, cryptocurrency has been labeled as a system that provides the anonymity required for malicious actors to conduct illegal activities.
Recently, there has been an increase in reported incidents of fraud, scams, and various other illegal activities. This is why global efforts to regulate the cryptocurrency space have reached a new high.
Countries regulate cryptocurrencies in their respective regions for a variety of reasons.
Some countries have placed a ban on cryptocurrency activities in their regions.
Some countries require crypto firms to register with regulatory authorities before operating.
Many cryptocurrency enthusiasts support the idea of regulating the cryptocurrency space. The million-dollar question, however, is if governments would be able to regulate the space without undermining the tenets of cryptocurrencies: decentralization, security, and scalability.

Disclaimer: This article is intended solely for informational purposes and should not be considered trading or investment advice. Nothing herein should be construed as financial, legal, or tax advice. Trading or investing in cryptocurrencies carries a considerable risk of financial loss. Always conduct due diligence.

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