Why Is There A Lack Of Regulation In The Crypto World?

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2 years ago

Following the 2008 Global Financial Crisis, several investors and consumers lost faith in banks’ capacity to uphold the interests of their clients. The inventor of Bitcoin, Satoshi Nakamoto, gained a large following after publishing a white paper in October 2008 advocating for a decentralized, “peer-to-peer” financial system as investors and consumers began looking for methods to escape the control of financial institutions.

People have been able to utilize cryptocurrencies to finance illicit operations including the sale of drugs and weapons due to the absence of regulation in the crypto sector. It can be challenging for authorities to find users engaging in these operations because several cryptocurrency networks have made it feasible for users to stay entirely anonymous on their networks. Speaking of cybercrimes, there are also a lot of scam sites so better use a trusted website like cryptoengine.app if you are planning to start bitcoin trading.

The Economic and Financial Crimes Commission has said the absence of regulation of the function of cryptocurrency is a key task hindering its inquiries. According to a recent study, initial coin offers (ICOs) are fraudulent scams in the “overwhelming majority” of cases. However, unlike equities, which are overseen by the U.S. Securities and Exchange Commission (SEC), and commodities, which are overseen by the U.S. Commodity Futures Trading Commission (CFTC), cryptocurrencies are not subject to any meaningful regulation. This lack of participation points to the necessity of new institutional governance which fully comprehends the technical and economic factors that underpin cryptocurrency.

Influencer marketing – a key role in cryptocurrency popularity

Influencer marketing, which generates awareness through social media platforms, is the current counterpart of a celebrity endorsement. The idea is that by making “mutual connections” with influencers who your target market respects, listens to, and trusts, you may interact with them.

Social media influencers potentially support the get-rich-quick fantasy by exerting considerable influence on their following. Therefore, without sufficient oversight, the volatility of cryptocurrencies with the further growth of influencer marketing could be fatal. Influencers are legally required to disclose if they have been compensated for their endorsements of goods or services, but few do (for example, by prominently using the hashtag #ad).

Challenges underlying cryptocurrencies regulation

Regulators face a hurdle in accurately categorizing the variety of cryptocurrencies that are now available. Many observers contend that cryptocurrencies are a completely new type of asset. Cryptocurrency market prices are still highly unpredictable. For instance, the cost of bitcoin recently rose to almost $20,000 before dropping sharply to under $7,000. Given the massive development of coin-related ICOs over the past couple of years, it makes sense that the SEC has expressed concern about the possibility of fraud with the emergence of ICOs. Stopping the use of ICOs for money laundering and terrorism is most of the authorities’ top priorities. Governments struggle to create regulations for the usage of cryptocurrencies, even though skeptics question the validity of these worries. Many governmental regulatory bodies are worried about how precisely to categorize ICOs and, consequently, how to regulate and tax them.

Regulators face a hurdle in accurately categorizing the variety of cryptocurrencies that are now available. This classification may apply to tokens that have a similar purpose to securities, but it is unmistakably applicable to so-called utility tokens. Utility tokens are understood to have some utility in addition to or apart from their worth as an investment. Utility tokens are defended primarily because they do not meet the Howey test’s definition of securities. It is because they cannot be considered common enterprises with an expectation of rewards from others’ labor.

The issue with categorizing tokens exclusively as securities is how they can concurrently serve as currencies, betting or voting tools, traditional securities, and other functions. Several organizations take cryptocurrencies in diverse ways. Cryptocurrencies are classified by some regulatory bodies as the equivalent of money, while others categorize them as digital goods, commodities, or even taxable property. The fact that cryptocurrencies do not always exactly fulfill the criteria of an “investment contract” has resulted in a legal void around the world.

Conclusion

Many business owners still worry about being fined by the SEC for careless errors. In the meantime, the types of investors interested in cryptocurrencies are restricted by regulatory uncertainties. Although this pattern may be shifting, the market will still need to be regulated creatively. It will require some creative solutions which include:

  • Improved law enforcement to lessen the quantity of fake ICOs
  • Establishing efficient regulations by coordinating with government and businesses
  • Creating enough assurance measures to safeguard investors from fraud
  • Constructing institutional grade custody systems to protect cryptocurrency investments

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