Regulation
Crypto Regulations Inevitable for 2024 and Beyond
The emergence of cryptocurrency has offered access to a digitized financial system free from government control. Store-of-value assets like Bitcoin have revolutionized the investment market and allowed investors to diversify their portfolios with the latest cryptocurrency-based technological projects, as Ethereum, Cardano or Polkadot followed the course of Bitcoin.
As innovative as they are, cryptocurrencies are not easy to introduce into the real world because they do not adapt to the current regulatory framework. That’s why buying cryptocurrencies is still not that easy, but you can take a look at Bitcoin price chart or any crypto data to improve your strategy. Not all exchanges can operate in some parts of the world, and the lack of digital literacy contributes to slow-speed adoption of the crypto ecosystem.
Therefore, to ensure worldwide adoption, cryptocurrencies must be regulated by official authorities to ensure safety and reliability. So, here’s what investors should expect this year and beyond.
US stablecoin issuers will be regulated
Unlike cryptocurrencies, stablecoins are tokens pegged to another, usually official, currency such as the US dollar or commodities such as gold. There are three main types of stablecoins:
- Fiat currency-based stablecoins are backed by official fiat money that offers stability and security. An example of such a coin is Tether USDT, and it is also one of the largest cryptocurrencies by market capitalization;
- Cryptocurrency-based stablecoins have their value stored in reserves. For example, MakerDAO’s DAI token is backed by Ethereum but pegged to the US dollar;
- Algorithmic stablecoins are based on a computer algorithm that controls supply and are similar to central banks;
Therefore, stablecoins are closer to the real-world financial system, so the US government plans to regulate some of them. However, stablecoins may be affected by the EU Markets for Crypto Assets (MiCA) Regulation, which will introduce stricter implementations for stablecoin issuers to ensure transparency for the end consumer. This year it may be possible to assess money laundering and tax evasion, particularly towards cryptocurrency exchanges.
Other ETFs will be accepted
Cryptocurrency Exchange Traded Funds have been the craze of 2023, as numerous companies have been submitting their projects for a few years now and only a few are awaiting approval from the SEC. But 2024 may be more important for BTC and ETH ETFs because they have increased in value as many investors have taken interest in them.
These ETFs bring many more benefits to a portfolio than any other digital asset because they are not directly linked to the cryptocurrency but rather reflect its value without exposing the user to volatility risks. Overall positive sentiment towards ETFs pushed the market into a boom during late 2023, so 2024 may finally be about their regulation.
However, only this may be possible BTC ETFs they will get their recognition because the authorities still do not trust Ethereum or any of its related assets. This is because Bitcoin is considered more secure, despite its high volatility, while Ethereum is more of a development tool.
DeFi ecosystems move closer to regulation
Decentralized finance offers users the power of decentralization and peer-to-peer transactions. The ecosystem involves cryptocurrencies, blockchain and software, eliminating the need for intermediaries. This environment still has a lot to introduce to become 100% reliable, which is why the SEC and other similar authorities have targeted enforcement actions against these projects. Indeed, in the case of the DeFi mixer, Tornado Cash, where money laundering has been facilitated, we can say that the novelty of the ecosystem exposes it to such risks.
However, its potential is significant, which is why DeFi may be subject to regulation. The International Organization of Securities Commissions has already provided a DeFi policy for countries to manage the use of these digital tools, so we should expect some progress for DeFi in the future.
Better oversight for AI and cryptocurrencies
Artificial intelligence in cryptocurrencies is on the rise, as it can improve decentralization through automation. The AI hype in 2023 has drawn a lot of attention to the risks of such a service, from taking people’s jobs to being a tool for illicit behavior. However, the potential of artificial intelligence in cryptocurrencies could help solve many of the existing problems. For example, artificial intelligence can be used to analyze market trends and identify potential threats for investors to evaluate and adjust their investment strategy. It could help them mitigate volatility, solving cryptocurrencies’ biggest challenge.
The EU has already introduced the AI Act, which provides a regulatory framework for companies and regular users to consider before taking advantage of these two technologies. Furthermore, it may be possible for other areas to take an interest in AI from this perspective and design appropriate policies.
Lawsuits over the exchanges could continue
Some cryptocurrency exchanges have faced serious legal action from the SEC in 2023 as the authority deems them untrustworthy to the public. Coinbase and Kraken are some of the largest cryptocurrency exchanges on the market and have been dragged by the SEC for failing to register their assets. In fact, the SEC had announced months earlier that all exchanges must comply with their protocols to continue operating. But even though their guidelines were mostly unclear, they quickly initiated legal action with these companies.
It may be possible that they will continue into 2024 as most have not even gotten to the root of the problem. Although the SEC has used a forceful method to handle cryptocurrencies, the market is actually prone to illegal securities due to decentralization. However, most of these blockchains and exchanges should better prepare their validators and nodes to safeguard ecosystems. At the same time, the government could offer training courses to users to avoid falling victim to hackers.
Conclusion
The cryptocurrency market has grown significantly in recent years, but this coverage has exposed it to several challenges that now require regulation to protect users. Therefore, 2024 could be the year that some of these issues are addressed, such as money laundering, so that investors and developers can use these tools and tokens. However, many of the upcoming regulations may hinder investments more than before, so people should stay up to date with the latest laws.