You have heard of cryptocurrencies, but what is crypto regulation?
You thought the whole point of cryptos was to be FREE from third-party intervention.
In other words, free from interference by banks and financial institutions.
That, after all, is the appeal of Cryptocurrencies – they are DECENTRALISED.
They involve “peer-to-peer” transactions – or person-to-person.
But, as with most things that exist independent of the mainstream, the authorities don’t like it.
They feel the need to step in, take control.
Why Governments & Financial Authorities Are Putting Crypto Regulations in Place
Because the use of cryptos is increasing the world over as both a currency and investment asset.
It is now accepted as payment by retailers and many other enterprises.
But that has seen a new wave of cybercrime.
There have been many cases of cyber criminals exploiting the consumer and public.
And illegal activities such as money laundering and the financing of terrorism.
Governments and financial authorities need to protect the public and prevent crime.
Hence the regulations.
Regulations should help businesses and individuals use cryptos with more confidence and security.
Regulations will involve:
- Setting standards for future crypto creation and exchange
- Establishing rules for crypto usage during financial transactions
Crypto regulations will vary from country to country.
For example, Bitcoin is legal in these countries where regulations are in place:
Yet, Bitcoin is illegal in:
- Central African Republic
A few countries have absolute bans on cryptocurrency all together, such as:
- Saudi Arabia
Types of Crypto Regulation
It’s vital for investors to understand the potential risks when investing in cryptos.
But now they must understand how crypto regulations work as these may impact the risk.
For example, some governments may:
- Limit how much money people can invest in crypto
- Impose taxes on crypto transactions
This could make it difficult for people to buy and sell cryptos legally.
There are also potential security risks associated with online exchanges.
You might become a target of hackers who steal customer’s funds.
Some crypto terms to be familiar with that will involve regulations include:
- Know-Your-Customer (KYC)
- Anti-Money Laundering (AML)
- Initial Coin Offerings (ICOs)
Challenges Regulators Are Facing
Cryptos started out as decentralised. So, regulators need to balance that with any regulations.
The challenges they face include:
- Ensuring compliance
- Safeguarding privacy
- Preventing crypto innovation
Regulators In Action
The Securities and Exchange Commission (SEC) is a US government agency.
Its job is to:
· Protect investors and ensure fair trading in the markets
· Enforce the law against market manipulation
· Be on the look-out for fraud
This involves all aspects of cryptos.
Cryptos, exchanges and crypto banks that have been under investigation include:
- Signature Bank
- Silvergate Bank
Best Practices For Complying With Crypto Regulations
If you are new to crypto, following best practices is the best way to stay compliant with regulations.
Indeed, anyone involved with cryptos should take note of the regulations to stay safe.
Some good ways to follow crypto regulations:
- Keep track of all crypto purchases or sales
- Maintain proper records of transactions in case you need them for tax purposes
- Ensure to include transfers of crypto to or from your digital wallets
If you’re running a business that involves cryptos, then having a crypto lawyer will help.
They should be able to tell you how to stay compliant with local regulations.
Also, get to know KYC and AML.
- KYC procedures involve verifying the identity of your customers
- AML to prevent the use of crypto for money laundering and other illegal activities
Implementing KYC and AML procedures can help you avoid legal and financial consequences.
Stay up-to-date on local regulations because crypto regulations vary from country to country.
This includes monitoring developments and staying informed about any new regulations.
Staying up-to-date will help you avoid legal and financial problems.
The Future Of Crypto Regulation
Crypto regulation is still in development as cryptos continue to evolve.
It’s a good idea to keep an eye on stablecoins as they are a kind of regulation.
These are cryptocurrencies that are “pegged” on a 1-1 value of another currency.
For instance, 1 stablecoin = $1USD.
This is to provide “stability” to offset any volatility with a particular crypto.
Tether (USDT) is an example of a stablecoin pegged to the US dollar.
As of January 2023, Tether was the third-largest cryptocurrency after Bitcoin and Ethereum.
It is the largest stablecoin with a market capitalisation of approximately $68 billion.
Tips For Beginners
If you’re interested in investing in cryptocurrencies but want to remain within the law, here’s what to do:
- Do your research before investing in any crypto so you understand the risks and rewards
- Choose a legitimate exchange when buying and selling crypto
- Keep records of all your cryptocurrency transactions for tax reporting purposes
- Stay informed about any new regulations or developments in the crypto space
The aim of crypto regulation is to make them more trustworthy and secure for everyday users.
Understanding the basics of these regulations should help seasoned investors and new.
That’s because crypto regulations may affect your crypto investing strategies. Good news is – you can find out a lot more about cryptos by subscribing to IM Insider here.