The cryptocurrency craze hit regulators like a bus. They didn’t see it coming, and now they’re scrambling to catch up to protect consumers.
Digital currency trading is unregulated and prone to dishonesty – such as fraudulent ICOs (Initial Coin Offerings) where investors flocked to be the first in, based on little more than a white paper. There have been allegations that ICOs are being used to fund terrorist activities, launder money, and tax evasion.
With cryptocurrency investments still yielding around 11x returns, it’s hard to resist. But without stricter regulations, it’s a risky proposition.
Here are some trends in cryptocurrency regulations that will affect the market:
- The Securities Exchange Commission (SEC) has requested detailed information from ICOs, cryptocurrency exchanges, and crypto-funds and may soon regulate ICOs as securities.
- The Office of Foreign Assets Control (OFAC) may be adding crypto-wallet addresses to its Sanctions List.
- The Internal Revenue Service (IRS) has collected over 14,000 user activity logs from Coinbase, a cryptocurrency exchange.
Within the USA, while the federal government is going around in circles trying to decide how to proceed, individual state governments are implementing their own regulations. Globally, each country seems to have its own regulations and even bans.
In other words, it’s chaos, and it’s not likely to settle down this year.
Governments typically move about as fast as tectonic plates when it comes to passing new regulations. This may cause some investors to hesitate as they wait for regulations that will protect them, while others are cashing in now while they still can (should governments impose bans or regulations that make investing impossible).
For now, it seems that the market needs to police itself. Crypto-entrepreneurs riding the wave of growth are playing in an uncertain field, and it remains to be seen how government regulations affect this growth.