What differentiates between a stock market and a crypto market? Broadly speaking, there are three: trading differences, geographic restrictions, and regulations. Firstly, there is the trading difference: company shares in stock markets and cryptocurrencies or tokens in crypto markets.
Secondly, geographical restrictions: you can trade crypto anywhere globally, which isn’t the case for stock markets. However, the most important point that I want to talk about is its regulations.
Unlike stock markets, crypto markets don’t face any regulations from any authority in the world. While this sounds good for some people, the regulatory bodies aren’t pleased with it. And with such tremendous ups-and-downs and the rising capitalization of cryptos over $2 trillion, many authorities are now looking at regulating them.
Recently, US Securities and Exchange Commissioner Gary Gensler called on expanding the agency’s authority in regulating crypto trading. In a speech at the Aspen Security Forum, he said:
“Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West. We have taken and will continue to take our authorities as far as they go.”
The regulatory committees are worried as due to the privacy-centric nature of cryptos, it’s difficult to track illicit transactions. Moreover, all these illicit transactions can cause trouble someday, so the authorities are planning to track crypto transactions.
Last December, the Financial Crimes Enforcement Network proposed new regulations to make it easier for the federal government to track Bitcoin transactions. This is one of the few moves to monitor the market.
But there’s one thing that I want to talk about: is it really possible for any authority to have the power of regulating cryptos?
Regulations on crypto trading is not easy as it may seem.
First of all, let’s understand what we are trying to aim for. We (the regulatory bodies) are trying to track crypto transactions to filter out and track illicit transactions. It sounds easy, right? But if you know about the ‘workings’ of cryptocurrencies, you know it’s not as simple as that.
First of all, all the transactions happening on the network are not under any log or any centralized source. Instead, all the entries of transactions on the network are present on a digital ledger which is on every node in the network. While that sounds great, since it’s pseudonymous, it’s of no use.
Secondly, if you really want to track all the users’ transactions, you can bind their wallet addresses with KYCs. This makes it possible to have a log of transactions every individual does on a crypto network. However, this defeats one of the main characteristics of cryptos: no centralized infrastructure.
And finally, the most important thing. Of course, you can track the individual, track his/her transactions, and charge him/her for illicit transactions if found guilty. However, without that individual’s private key, it’s virtually impossible to retrieve those illicit funds. Moreover, since there’s no central authority like a bank, there’s no way you can retrieve those funds if the individual decides not to release them.
However, that does not mean that regulatory bodies aren’t doing right by looking at regulating crypto markets.
Any market that wants to survive requires regulation, whether it is the stock market or crypto market. Moreover, any market can only mature if it has some regulations. After regulation, a major part of the investors who ‘casually’ invest in the stock markets leave the space. In fact, as this happens, the market starts to settle and become less violent with time. This is great for investors and companies as violent shakes in the market can result in terrible losses.
Moreover, if the regulatory bodies are planning to regulate crypto markets, this means that they are taking cryptocurrencies seriously. This is great as earlier a major portion of them considered it to be a ‘hoax’. However, we only hope that these authorities have some ‘realistic plans about regulation.
Moreover, crypto exchanges and companies should also feel assertive towards these regulations.