Decentralization, lack of control, freedom of transactions… These few terms have faithfully characterized the crypto universe since its appearance. This still applies to this day. At least partially. The institutions of many states around the world have started a regulatory move, with the firm desire to tame the flow of cryptocurrencies. What are their chances of success? Well, not so thin. However, there is taming and taming. This is what to expect when talking about regulation or regulation of cryptos.
- Regulation: a concept incompatible with the nature of cryptos?
- The potential benefits of soft regulation
- An open door for huge investments?
Regulation: a concept incompatible with the nature of cryptos?
During the lockdowns related to the Covid, cryptocurrencies have had a staggering success. So much so that they have reached a valuation of about $2.3 trillion. Which is far superior to the famous subprime of 2008, 1,200 billion. Cryptos are considered perfect in the first place alternative investment, especially given the successive crises of the traditional economy. It is precisely this point that justifies the fear of institutions such as the ECB or the Bank of England around the world. That the majority of the population is leaving traditional investments to bet on cryptos. Also that the money flows often become untraceable and uncontrollable. Risks such as: fraud value money laundering are seriously studied.
But are these real risks, or just pretexts to get your hands on a thriving industry? There’s the question. Cryptos naturally rely on blockchains. So a completely decentralized system, without any control or regulation entity. This is the basic operation of all blockchain and all cryptocurrencies. However, institutions want to regulate what happens on both blockchains and crypto transactions. Yes, regulation and the cryptosphere are by definition two incompatible concepts. However, let’s take a look at the possibilities associated with a regulation that would like to be soft.
The potential benefits of soft regulation
While some purists in the crypto world argue that regulation can harm the industry, there’s no denying that reasonable policies could allow mainstream users and institutions to get on board. Despite their success, it is true that cryptos still only represent a small part of the global economy. So any regulation is likely to come sooner rather than later. For example, US senators Cynthia Lummis and Kirsten Gillibrand are political figures pro cryptos have worked hard to introduce balanced rules, to avoid a crackdown on the crypto industry.
Many experts agree that the United States should play a leading role in developing such regulatory policies. Indeed, the aim is to allow regulation, innovation and consumer protection to coexist. This always with a view to maintaining the necessary flexibility to ensure the continuous evolution of the digital asset market.
An open door for huge investments?
In the past two years alone, traditional financial and decentralized finance (DeFi) confronted each other several times. Both in terms of their respective advantages and their limitations.
The mixed opinion of Jaimie Dimon, CEO of JPMorgan, is a perfect example of this. Until recently, he publicly claimed that bitcoin is not a… “no intrinsic value” and “supervisors will regulate hell”. Today, many venture capital firms are betting on cryptos and no longer hesitate to fund developers and engineers around the world. So sovereign wealth leaves pension funds and institutions to digital assets. Kevin O’Leary, a well-known Canadian businessman, estimates that billions of dollars will be injected into the crypto world once the regulations are validated. In terms of numbers, about 90% of the invested capital on Earth is in the hands of sovereign wealth funds and pension schemes. Who have absolutely no crypto.
The Reign of Bitcoin (BTC)
Bitcoin reaching a market cap of $800 billion is thus not a relevant ambition. However, institutions have said they want to allocate between 50 and 100 basis points to pegged cryptos. However, many of these funds manage hundreds of billions of dollars, with the goal of staying diversified. A portfolio allocation of just 1% to bitcoin and other cryptocurrencies would therefore fuel unprecedented demand for digital assets. Last advantage: the volatility prices may finally fall. The funds will sell when prices exceed their allotment level and then buy back when prices fall below. Say goodbye to high volatility.
Yes, regulation and cryptos are inherently incompatible. But on the contrary, if we examine the subject more closely and analyze the problems related to a balanced regulation, it seems that the latter could help the crypto-sphere to reach even greater heights.
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Founded by Marc-Antoine CAEN POLETTI in 2021, Alt Write SEO is a content writing agency specializing in cryptocurrency, blockchain and NFTs. It originated in 2016 at the French Cryptocurrency Club, of which Marc-Antoine is the current president. Our mission is to support French-speaking crypto companies to make France the first cryptonation in the world.