How Regulation Will Affect Cryptocurrency


With the beginning of cryptocurrency regulation in the U.S., many investors are wondering how they will be affected and how it will make a difference in the price of virtual currency. New investors may see more of a risk to start buying cryptos, as regulation may affect their tax liability, which cryptocurrency they can legally buy, and the other red tape they may have to go through just to buy Bitcoin or other cryptos. At this point, some may find it easier to check out things like Preakness Stakes odds instead of risking their money on something so volatile. 

Since the securities market is tightly regulated, many feel cryptocurrencies should have something similar, while others think regulation could restrict them too much and slow down their progress. However, since regulation is to protect people’s investments and lessen the amount of fraudulent activity, any regulation needs to be balanced not to make it too difficult for people to buy and sell cryptos, which would slow down their usage.

Prices Could Be Drastically Affected

The big question on many people’s minds is if cryptos will fall in price once new regulations are implemented. For example, if the government imposes a regulation to ban crypto exchanges, it would be almost impossible for the average person to buy them. That loss of interest would undoubtedly cause a sharp decline in the market. 

However, regulations that would require the exchanges to keep more accurate records of transactions and prevent manipulation of the market would make cryptos more readily available to conservative investors, which could cause the price to increase. The U.S. isn’t currently interested in banning any crypto exchanges and will probably end up allowing banks to sell digital currency in the future. However, there is no concrete plan to reach that point. 

Current Regulations

Cryptocurrencies were a part of legislation in the U.S. for the first time back in November 2021, when the government issued a small group of crypto provisions as part of the Infrastructure Investment and Jobs Act. They define cryptos as digital assets. In addition, any individual or company that transfers digital assets for anyone else is now considered a broker, who is required to issue a 1099-B form to every customer and the IRS.

This is mixed news for crypto investors. The good news is it will help them to keep track of their profits and losses more easily by receiving a 1099-B from the government every year. It could be bad news for some, as the IRS also gets a copy of the form, which means investors can no longer hide their profits from the government. The regulations won’t take effect until the 2024 tax season, so any profits or investments won’t be reported until 2023.

Europe Proposing Regulations

The E.U. will soon be handling its own regulation of cryptocurrencies as digital assets are being lost during the recent crisis that has affected the prices of some of the biggest cryptos. They have become very popular in Europe due to limited government interference. The new regulations would only make cryptos approved by the E.U. available to investors, with minimal regulation of the crypto exchanges.

The E.U. will become the first organization outside of the U.S. to propose a specific program for regulation, with some states already having legislation for digital tokens and crypto. However, other countries outside of the E.U., such as Hong Kong and the U.K., are hesitant to impose regulations or apply existing legislation for securities.

Any crypto from outside the E.U., such as Bitcoin, must register with the organization to gain admission to the market. Consumers who don’t know the difference between international and E.U. crypto will take most of the risks due to these regulations.

Consumers will be at risk of buying unregulated cryptos or opening themselves up to scams. The government will need to inform those consumers to learn how to distinguish between deceitful and legitimate schemes.

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