Regulation

How cryptocurrency investors behave and why the industry needs regulation

Published

6 months ago

19 May, 2024

How cryptocurrency investors behave and why the industry needs regulation

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Instability has plagued cryptocurrency markets since the collapse of Terra Luna and FTX exchanges in 2022. Concern has only grown this year amid wild price swingsTHE belief of FTX founder Sam Bankman-Fried and the imminent sentence by Binance co-founder Changpeng Zhao.

Gary Gensler, chairman of the US Securities and Exchange Commission, believes events are unfolding in the industry require stricter regulations. MIT Sloan finance professor Antoinette Schoar, who studies the industry, agrees in principle.

“Regulatory uncertainty is always the worst thing, especially for well-intentioned and respectable players,” Schoar said. “They don’t want to enter an area where the regulatory situation is unclear because they have more to lose, but this in turn means higher barriers to entry.”

Insights from two new MIT Sloan research papers, co-authored by Schoar, compare lessons learned from Terra Luna’s 2022 collapse, show how retail traders trade cryptocurrencies, and demonstrate why the industry needs clarity on regulation.

How cryptocurrency investors behave

In “Are cryptocurrencies different? Evidence from retail,” Schoar and co-authors Shimon Kogan, Igor Makarov and Marina Niessner wanted to better understand how retail investors – “who dominate cryptocurrency trading” – approach the market.

“For a long time, people inside and outside of cryptocurrencies have basically said, ‘Oh, all these traders are just driven by hype and don’t understand anything,’” Schoar said. “There was a lot of judgment about cryptocurrency traders without having a lot of data on how they actually trade.”

To fill this gap, researchers examined patterns in retail investors’ trading data across cryptocurrencies, stocks, commodities and other assets on the discount brokerage platform. eToro. They found the following:

Retail investors who trade cryptocurrencies hold onto their investments even in the face of large price swings, even if they are larger contrarian on shares or raw materials (in the sense that sell when the price has risen in the past and buy when the price has fallen). This model applies to all types of cryptocurrency traders, whether they are young males (the typical cryptocurrency trader), middle-aged women, or anyone else, Schoar said.

The research also suggests that while there is a lot of hype about cryptocurrencies, there is also a method to explain this madness. If investors think that a higher price bodes well for the future of cryptocurrencies, making it more likely that other investors, or even regulators, will look more favorably on cryptocurrencies in the future, it helps to continue to push the price higher . As a result, investors do not find it irrational to bet on momentum or hold their cryptocurrency portfolio when the price rises.

These insights provide valuable information not only for market participants but also for regulators thinking about consumer financial protection.

Lessons from a cryptocurrency crash

In “Anatomy of a Race: The Terra Luna Crash,” Schoar and co-authors Jiageng Liu and Igor Makarov delve into the May 2022 collapse of Terra, which at the time was the third largest cryptocurrency ecosystem (after Bitcoin and Ethereum).

At the heart of the collapse was the rush for the blockchain-based lending and borrowing protocol (Anchor) that promised high returns to investors in its TerraUSD stablecoin (ticker UST). While the cryptocurrency market has evolved over the next 18 months, the lessons are even more applicable today, Schoar said.

Using data from the Terra blockchain and trading data from exchanges, the authors determined the following:

The UST Terra rush was a complex phenomenon that occurred across multiple chains and assets.

The transparency of blockchain technology has allowed investors to monitor the actions of others and amplified the speed of the ride.

Richer, more sophisticated investors were the first to exit and suffered much smaller losses, while poorer, less sophisticated investors fled later and experienced larger losses.

A collapse of cryptocurrencies has implications for the rest of the industry and even other sectors of the economy. Looking specifically at Terra’s collapse, Schoar said it dramatically affected the cryptocurrency sector, depressing the price of Bitcoin and Ethereum, and also led to the demise of large institutions like Celsius, Voyager, and ultimately FTX.

The collapse had ripple effects and “showed how quickly it can have repercussions on the rest of the economy,” he said. For example, banks like Silver Lake that traded in cryptocurrencies they were immediately impressed. “This shows that in reality a collapse in cryptocurrencies can easily affect the rest of the economy,” Schoar said.

The 24/7 nature of cryptocurrencies amplifies existing risks

Terra Luna collapsed in three days in May 2022, wiping out a $50 billion valuation. Schoar’s research has shown that smaller, less informed retail investors have held onto their cryptocurrency investments, even in the midst of large price swings.

Consumer financial protection is indeed very important in a world where there are many uninformed retail investors.

Antoinette Schoar
Professor, MIT Sloan

“A lot of people — the little guys — had this willingness to resist, and I think unfortunately that shows that among the small investors, there were a lot of them who just didn’t understand how that system worked,” Schoar said. “Somehow they thought, ‘Oh, it’s like a stock is going down.’ Let me continue to resist because it will come back out when everyone is no longer afraid.’ But, obviously, not when there is a race.”

The 24/7 nature of blockchain has only made things worse. In a more traditional environment, trading stops and banks close their doors at the end of the business day, even if they are digital, whereas blockchain never closes. And with a traditional bank, the FDIC will protect small traders who have deposit insurance, so they often don’t experience such a rapid run. But none of these guarantees exist in cryptocurrencies.

“Everything is online and open 24/7,” Schoar said. “We don’t see any physical barriers in the cryptocurrency industry, but the fact that many small traders simply lack the human capital or means to trade, even when they could have traded, shows that consumer financial protection is very important indeed in a world where there are many uninformed retail investors.

Crypto platform transparency has its limits

Schoar said that just because transaction data is available on the blockchain, that doesn’t make it 100% transparent and doesn’t level the playing field for all investors.

For example, the authors’ main data source in their Terra Luna paper was Terra’s blockchain, which was substantially more complex than Bitcoin’s, which only records bitcoin transfers from one account to another.

The structure of Terra’s blockchain, however, does not involve the simple transfer of tokens but incorporates the inputs and outputs of smart contracts, which is even more complicated because each smart contract has its own data structure, the authors said.

“It takes a lot of effort to process this data and it’s not easy to do,” said Schoar, who worked for six months to process the data for his research on Terra. “A normal retailer might not have the time or knowledge to do this, so this is clearly a barrier.”

Employees working at Terraform Labs, the company that founded Terra Luna, have also made many missteps. Even though they “probably processed and monitored the information in real time, probably even better than us, you can see the mistakes they made,” Schoar said. For example, “because they allowed so many USTs to be issued, they actually made the system much more fragile and prone to failure.”

“Maybe they didn’t do it on purpose, because it’s not in their interest to destroy their reputation with these bad decisions,” Schoar said. “But once there was so much publicity and the value increased dramatically, they were unable to manage the risks and fully understand the dynamics of the system. Even for relatively sophisticated players, there is still a lot of complexity to digest.”

The industry needs a regulatory framework, not regulation through lawsuits

Schoar said it makes sense for lawmakers to “regulate proactively” rather than sue companies that did something wrong after the fact. For one thing, lawsuits can take an incredibly long time to resolve. Schoar said organizations like it Coinbase AND Binance who have a lot of money have an incentive to drag out a lawsuit. And the fines are often small compared to the profits made by evading regulations.

“The Securities and Exchange Commission and the Treasury Department are pursuing enforcement action suing Voyager, Coinbase, Binance and other organizations, and that I think is actually a little bit suboptimal,” Schoar said. “It would be much better for Congress establish laws and provide a regulatory framework, because regulation through legal action is rather ad hoc.

Let’s take the case of Binance. The company’s CEO and founder recently pleaded guilty to violating U.S. anti-money laundering requirements in a Seattle court. While the fine of over $4 billion may seem large at first glance, it pales in comparison to the profits that Binance was able to accumulate. “This shows that we really need a regulatory framework, not just regulation through lawsuits,” Schoar said.

Continue reading: Decentralized Finance: 4 Challenges to Consider

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Regulation

Cryptocurrency Regulation in Slovenia 2024

Published

4 months ago

1 August, 2024

Chain Feed Staff

Cryptocurrency Regulation in Slovenia 2024

Slovenia, a small but highly developed European country with a population of 2.1 million, boasts a rich industrial history that has contributed significantly to its robust economy. As the most economically developed Slavic nation, Slovenia has grown steadily since adopting the euro in 2007. Its openness to innovation has been a key factor in its success in the industrial sector, making it a favorite destination for cryptocurrency enthusiasts. Many believe that Slovenia is poised to become a powerful fintech hub in Europe. But does its current cryptocurrency regulatory framework support such aspirations?

Let’s explore Slovenia’s cryptocurrency regulations and see if they can push the country to the forefront of the cryptocurrency scene. My expectations are positive. What are yours? Before we answer, let’s dig deeper.

1. Cryptocurrency Regulation in Slovenia: An Overview

Slovenia is known for its pro-innovation stance, providing a supportive environment for emerging technologies such as blockchain and cryptocurrencies. Under the Payment Services and Systems Act, cryptocurrencies are classified as virtual assets rather than financial or monetary instruments.

Regulation of the cryptocurrency sector in Slovenia is decentralized. Different authorities manage different aspects of the ecosystem. For example, the Bank of Slovenia and the Securities Market Agency supervise cryptocurrency transactions to ensure compliance with financial laws, including anti-money laundering (AML) and counter-terrorist financing regulations. The Slovenian Act on the Prevention of Money Laundering and Terrorist Financing (ZPPDFT-2) incorporates the EU’s Fifth Anti-Money Laundering Directive (5MLD) and aligns with the latest FATF recommendations. All virtual currency service providers must register with the Office of the Republic of Slovenia.

2. Cryptocurrency regulation in Slovenia: what’s new?

This year, there have been several noteworthy developments in the cryptocurrency sector in Slovenia:

July 25, 2024: Slovenia has issued a €30 million on-chain sovereign digital bond, the first of its kind in the EU, with a yield of 3.65%, maturing on 25 November 2024.

May 14, 2024: NiceHash has announced the first Slovenian Bitcoin-focused conference, NiceHashX, scheduled for November 8-9 in Maribor.

3. Explanation of the legal framework for cryptocurrency taxation in Slovenia

Slovenia’s cryptocurrency tax framework provides clear guidelines for both individuals and businesses. According to the Slovenian Tax Administration, tax treatment depends on the status of the trader and the nature of the transaction.

Individuals: Income earned from cryptocurrencies through employment or ongoing business activities is subject to personal income tax. However, capital gains from trading or market fluctuations are exempt from taxation.
Society: Capital gains from cryptocurrency activities are subject to a corporate income tax of 19%. Value added tax (VAT) generally applies at a rate of 22%, although cryptocurrency transactions considered as means of payment are exempt from VAT. Companies are not allowed to limit payment methods to cryptocurrencies only. Tokens issued during ICOs must comply with standard accounting rules and the Corporate Tax Act.

4. Cryptocurrency Mining in Slovenia: What You Should Know

Cryptocurrency mining is not restricted in Slovenia, but the income from mining is considered business income and is therefore taxable. This includes rewards from validating transactions and any additional income from mining operations. Both natural persons and legal entities must comply with Slovenian tax regulations.

5. Timeline of the evolution of cryptocurrency regulations in Slovenia

Here is a timeline highlighting the evolution of cryptocurrency regulations in Slovenia:

2013:The Slovenian Tax Administration has issued guidelines according to which income from cryptocurrency transactions should be taxed.
2017:The Slovenian Tax Administration has provided more detailed guidelines on cryptocurrency taxation, based on factors such as the trader’s status and the type of transaction.
2023The EU has adopted the Markets in Cryptocurrencies Regulation (MiCA), which establishes a uniform regulatory framework for cryptocurrencies, their issuers and service providers across the EU.

Final note

Slovenia’s approach to the cryptocurrency industry is commendable, reflecting its optimistic view of the future of cryptocurrency. The country’s balanced regulatory framework supports cryptocurrency innovation while protecting user rights and preventing illegal activities. Recent developments demonstrate Slovenia’s commitment to continuously improving its regulatory environment. Slovenia’s cryptocurrency regulatory framework sets a positive example for other nations navigating the evolving cryptocurrency landscape.

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Regulation

A Blank Slate for Cryptocurrencies: Kamala Harris’ Regulatory Opportunity

Published

4 months ago

1 August, 2024

Chain Feed Staff

A Blank Slate for Cryptocurrencies: Kamala Harris' Regulatory Opportunity

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As the cryptocurrency landscape continues to evolve, the need for clear regulation has never been greater.

Vice President Kamala Harris is now leading the charge on digital asset regulation in the United States, presenting a unique opportunity for a clean slate. This fresh start can foster innovation and protect consumers. It can also pave the way for widespread adoption across industries, including real estate agencies, healthcare providers, and online gambling platforms like these online casinos in the uk. According to experts at SafestCasinoSites, these platforms have advantages such as bonus offers, a wide selection of games, and various payment methods. Ultimately, all this increased adoption could push the cryptocurrency market forward.

With that in mind, let’s take a look at the current state of cryptocurrency regulation in the United States, which is a complex and confusing landscape. Multiple agencies, including the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and the Financial Crimes Enforcement Network (FinCEN), have overlapping jurisdictions, creating a fragmented regulatory environment. This lack of clarity has hindered innovation, as companies are reluctant to invest in the United States, fearing regulatory repercussions. A cohesive and clear regulatory framework is urgently needed to unlock the full potential of cryptocurrencies in the United States.

While the US struggles to find its footing, other countries, such as Singapore and the UK, are actively embracing the cryptocurrency industry with clear and supportive regulatory frameworks. This has led to a brain drain, with companies opting to set up in more hospitable environments.

Vice President Kamala Harris has a unique opportunity to change this narrative and clean up the future. cryptocurrency regulation. By taking a comprehensive and inclusive approach, it can help create a framework that balances consumer protection with innovation and growth. The time has come for clear and effective regulation of cryptocurrencies in the United States.

Effective regulation of digital assets is essential to fostering a safe and innovative environment. Key principles guiding this regulation include clarity, innovation, global cooperation, consumer protection, and flexibility. Clear definitions and guidelines eliminate ambiguity, while encouraging experimentation and development to ensure progress. Collaboration with international partners establishes consistent standards, preventing regulatory arbitrage. Strong safeguards protect consumers from fraud and market abuse, and adaptability allows for evolution in response to emerging trends and technologies, striking a balance between innovation and protection.

The benefits of effective cryptocurrency regulation are many and far-reaching. By establishing clear guidelines, governments can attract investors and traditional users, spurring growth and adoption. This, in turn, can position countries like the United States as global leaders in financial technology and innovation. Strong protections will also increase consumer confidence in digital assets and related products, boosting economic activity.

A thriving cryptocurrency industry can significantly contribute to GDP and job creation, which has a positive impact on the overall economy. Furthermore, effective regulation has paved the way for the growth of many companies such as tech startups, online casinos, and pharmaceutical companies, proving that clear guidelines can unlock new opportunities without stifling innovation. This is a great example of how regulation can alleviate fears of regressive policies, even if Kamala Harris does not repeal the current progressive approach. By adopting effective regulation, governments can create fertile ground for the cryptocurrency industry to thrive, driving progress and prosperity.

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Regulation

Think You Own Your Crypto? New UK Law Would Ensure It – DL News

Published

4 months ago

1 August, 2024

Chain Feed Staff

Think You Own Your Crypto? New UK Law Would Ensure It – DL News

The UK Law Commission has developed a bill that will address a situation of legal uncertainty.
The commission’s goal is to ensure that cryptocurrencies are legally treated as personal property.

UK law is not entirely clear whether cryptocurrencies can be considered personal property.

This is according to the UK Law Commission, which argues that while most investors assume that when they buy cryptocurrencies, they are “acquiring property rights in the same way as buying, say, a watch or a laptop.”

“As the law currently stands, this is not necessarily the case,” the respected legal body said in a new report on Tuesday.

The report was accompanied by a solution: a new bill to consolidate the legal status of digital assets as personal property.

This could be huge for the estimated 4.7 million Britons valued hold cryptocurrencies.

“This will allow the courts to determine a range of issues,” the report says.

If passed, the law would help clarify how cryptocurrencies are treated in cases of bankruptcy, estate planning or theft.

Flexible law

The commission is an independent body responsible for reviewing UK law. It began investigating whether English and Welsh property laws apply to digital assets in 2020.

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At the time, then-Chancellor of the Exchequer Rishi Sunak expressed ambitions to transform the UK into a cryptocurrency hub as Britons invested more.

In 2023, the commission decided that, in most cases, the legislation of England and Wales is sufficiently flexible to regulate cryptocurrencies.

This means that any asset, from Bitcoin to non-fungible tokens and some types of digital contracts, can be considered personal property, without Parliament having to write extensive new laws.

There was one small area of uncertainty, however: it was unclear whether cryptocurrencies fell within the two categories of personal property recognised under UK law.

These two categories are made up of tangible assets (cars, laptops, bags) and intangible assets (contracts, stocks, and debt).

The bill that will now go to Parliament to be converted into law aims to remedy this situation.

Without that clarification, courts may try to lump cryptocurrencies together with intangible assets, said Adam Sanitt, head of litigation, knowledge, innovation and corporate support EMEA at law firm Norton Rose Fulbright. DL News in March.

This is problematic because intangible assets are creations of the legal system, while cryptocurrencies are not.

“How the law treats digital assets, what rights you have over them, how you own them, how you transfer them to other people—that treatment is different, because digital assets don’t exist by virtue of the legal system, but independently of it,” Sanitt said.

The money in your bank account, for example, is a legal creation. The government could pass a law to cancel it.

However, if the UK passed a law banning Bitcoin, Bitcoin would not cease to exist.

Sanitt said: “That’s why digital assets are so important: neither the government nor the legal system can take them away from you.”

Contact the author at joanna@dlnews.com.

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Regulation

The Solution the Cryptocurrency Industry Needs

Published

4 months ago

1 August, 2024

Chain Feed Staff

The Solution the Cryptocurrency Industry Needs

The cryptocurrency industry has performed remarkably well since its inception, but now faces a critical hurdle that requires careful consideration and regulatory expertise to overcome. Despite the industry’s rapid growth and rate of global adoption, the gap between the industry and global regulation is only widening as new innovations break through into the public domain.

Although efforts are being made on both sides, regulators’ lack of familiarity with cryptocurrencies and the industry’s lack of regulatory expertise are hindering innovation in the sector. To address this issue, traditional financial institutions (TradFi) such as MultiBank Group have started venturing into the cryptocurrency sector.

The regulatory gap

Over the past decade, the cryptocurrency industry has grown dramatically as tech entrepreneurs and forward-thinking thinkers have founded a plethora of crypto platforms and protocols to push the boundaries of the space. The problem faced by these newcomers, who are often unfamiliar with the hurdles posed by financial regulators, can quickly overwhelm and stall operations.

On the other hand, regulators more attuned to TradFi systems may be equally stifled by the complexities of decentralization and blockchain technology. The unfamiliarity experienced by both innovators and regulators creates a stark regulatory divide between both sides, leading to misunderstandings and potential conflicts.

To overcome this lack of communication, a bridge must be built to bridge the gap, ensuring future stability for the cryptocurrency industry and clearer legislation from regulators.

Efforts to bridge the gap between industry

The gap between the cryptocurrency industry and regulators is slowly narrowing as efforts to regulate cryptocurrencies and Web3 space activities are gaining momentum. Specific regulatory actions are taking place in many countries, aimed at providing greater oversight of cryptocurrency transactions, cryptocurrency exchanges, and initial coin offerings (ICOs).

Despite being a positive step in the right direction, these new regulations can differ significantly between jurisdictions around the world. This fragmentation results in a regulatory environment filled with obstacles, bottlenecks, and varying requirements and prohibitions. As cryptocurrency companies and TradFi institutions attempt to navigate the minefield, the regulatory maze becomes increasingly convoluted.

TradFi institutions like MultiBank Group are working to solve this problem, as one of the largest financial derivatives institutions in the world with over 12 licenses across all continents. Founded in 2005, the Group has an impeccable and trustworthy reputation globally, extensive expertise in financial regulation and has now ventured into the cryptocurrency space via MultiBank.io.

MultiBank.io: TradFi Excellence in the Crypto Space

Expanding into the cryptocurrency space via MultiBank.io has enabled MultiBank Group to provide regulatory clarity and trust to the digital asset industry. With a substantial daily trading volume of $12.1 billion, the timely decision to enter the cryptocurrency space has the potential to set regulatory precedents and standards for years to come.

By helping to develop sensible and well-considered regulations, MultiBank.io’s established reputation allows the company to communicate effectively and clearly with regulators. Unlike others in the industry without regulatory expertise, MultiBank.io facilitates the Group’s commitment to rigorous regulatory standards, the scope of oversight and establishes the necessary transparency.

The company’s approach ensures that regulatory licenses are pre-acquired, compliance is met globally without jurisdictional barriers, and transactions remain secure at all times. By helping to create robust regulations that are both clear and innovation-friendly, MultiBank Group looks forward to standardizing the entire cryptocurrency industry for other potential innovators.

One of the biggest challenges in establishing a clearly constructed bridge between regulators and the cryptocurrency industry is effective communication. By leveraging its institutional background TradFi and acting as an intermediary with regulators, MultiBank Group is able to translate the needs of the industry to those who shape it.

This quality of mediation is essential to ensure that regulation helps develop essential technological advances rather than hinders their establishment and growth. Through the lens of TradFi when looking at the complexity of the cryptocurrency industry, MultiBank Group is able to deconstruct unfamiliar crypto arguments for regulation and create a safer and more secure space.

Where TradFi and Crypto Meet

Regulations are crucial for traders, investors, and everyday users of crypto platforms and their safety when participating in crypto markets. While strict regulations are necessary for stable market integrity, innovation should still be considered, something MultiBank Group considers a priority.

Where TradFi and cryptocurrencies converge, the Group is there to provide a balanced approach to ensure promotion for both the cryptocurrency industry and regulators seeking to protect both retail and institutional investors. This balance is critical to maintaining a thriving space where cryptocurrency innovation can thrive without compromising the security of user funds or data.

As more TradFi institutions like MultiBank Group enter the cryptocurrency space with ever-expanding expertise in regulatory understanding, the future of the industry is increasingly encouraged. The financial freedoms of the cryptocurrency space coupled with regulatory oversight for financial security will be the guiding lights for the future success of the entire cryptocurrency industry.

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