The Challenges of Regulating Cryptocurrency in the World


Cryptocurrency regulation took a new turn when investors were warned about fraudulent Ponzi schemes. Even though the governments of any particular country do not regulate cryptocurrencies, there has been a concern expressed over the exuberance displayed by investors in the crypto market. Learn more about different trends at

Due to this irrational extravagance, many people fall prey to fraud schemes that claim to provide initial coin offerings. Whenever you talked about an investment like stocks and bonds, there was a regulatory body overhead that managed the entire system and prevented or minimized the probability of people being the victims of fraud.

Currency is a decentralized system which essentially means that it has no regulatory body. Decentralization has its benefits which makes cryptocurrencies like Bitcoin extremely popular among investors. But the regulatory body for different cryptocurrencies is important from an institutional perspective for a better understanding of the finance-related technical issues pertaining to the crypto market.

Initial Coin Offerings


Initial Coin Offerings (ICOs) have a myriad of applications, including using them as a source of fundraising. They also facilitate access to investor funds and have led to two companies generating large amounts of capital. Regulating initial coin offerings is a big target on the agenda of different governments.

The regulation is also based on the high price volatility of different cryptocurrencies. For instance, Bitcoin saw an all-time high recently but also saw the value fall to significantly less than what it was before. There has been a significant growth related to ICOs, which has also led to a high chance of people being susceptible to fraudulent activities.

But a notable factor is that coin offerings have succeeded in raising an amount of 6 billion dollars. If we talk about the market capitalization related to crypto assets, it falls at 221 billion dollars. The primary concern of government institutions in relation to ICO is to prevent instances of money laundering.

Regulating ICO


Regulating ICO is a big challenge simply because of how cryptocurrency works. Another challenge attached to this factor is the government’s need to tax ICO and keep track of the related transactions among investors, which many traders are against. Legal complications were attached to the organizations that were involved with initial coin offerings. The sale of unregistered securities is against the law and can even lead to a present sentence which makes companies more careful about their involvement with ICO.

Classifying types of cryptocurrencies that are in the market remains one of the biggest challenges of regulatory authorities. There is also the problem of cryptocurrency being an asset class that did not exist before. Especially true for utility tokens which are defined by their use outside of being an investment. Tokens, in general, require a stricter classification which is extremely difficult because of their functioning on multiple levels.

Currently, tokens function as traditional securities, as well as currencies and also voting instruments. There is currently an apprehension about how to classify cryptocurrencies. On the one hand, they can be seen as taxable property or an asset while being digital commodities. But there is no unity amongst the regulatory authorities on how to classify different cryptocurrencies because, at times, they are also seen as monetary equivalents. Regulation, therefore, becomes extremely difficult because without defining a particular aspect, the regulations will become vague.

Investor Involvement


In the US, there has been a significant interest in regulating ICO. One can expect a certain legal framework to emerge eventually in relation to regulating cryptocurrencies. But even if a government authority can form regulatory restrictions on cryptocurrencies, they will have to make sure that the rules are not overburdening and taking away the liberty of investors in terms of risk-taking.

Most probably, as soon as regulations are put forth, they will impact the experience of investing in cryptocurrencies. As of now, we can find three types of regulations put forth in terms of government authorities. For instance, in Switzerland, you see an open policy that allows for the financial freedom of all the citizens. The US and contrast have stricter policies even though it allows for an open environment.

Lastly comes China which operates with a closed regulatory system. Ideally, government regulations should be enforced primarily for the protection of individual investors. Patients should also work actively to help legitimate businesses to grow while disabling the agency for illegitimate parties.

Starting from Scratch


Even though there has been active interest by government authorities regarding the regulation of ICO, a significant challenge — in terms of the growing investment in the crypto market — remains. A big challenge is for the authorities to make new laws rather than repurposing the old ones. This is because digital currencies like Bitcoin and other altcoins have not been encountered by regulatory authorities before.

The approach towards regulation needs to be perfectly tailored to add digital assets. Due to insufficient regulations, their husband experienced significant growth in market manipulation. Overcoming the challenges mentioned above is not difficult as long as legal protection in terms of loss is being offered to small investors. Customizing the regulations will help provide security to small investors and will prevent big institutions and corporations from overtaking the market and dictating its size.

There is a lot of fear among investors due to these regulations. Government involvement is supposed to be strict and can lead to induce fear which will lead people to back off from investing in cryptocurrencies altogether. The solution, therefore, needs to factor in keeping people in the loop while protecting their best interests. Effective regulations made to be formulated from scratch by defining the objectives before being enforced.

The Takeaway

In conclusion, we can safely say that even if the regulations are coming, this will need to be tailored according to the market. Be prepared for certain regulations because it will mean more security, especially for small investors. However, just because regulations are incoming does not leave that they are right around the corner.