Will cryptocurrencies be regulated? We believe they can | Van Gaalenberg and Dag Abilharsen

As regulation in the cryptocurrency industry takes shape, the question to ask is: How can the ideal of free market and financial innovation be managed and promoted at the same time? Can regulation even exist? Or should it be the opposite: “Don’t regulate, regulate!”

Managing regulations becomes particularly complex when interacting with the code itself. If the code itself is legal, it is a protected entity. If it is not, there is often no one to enforce the same rules at the same time. To avoid, or at least minimize, problems this requires a balance of law and code between the two entities. It depends upon how the government decides to handle the problem.

In our opinion, one line of regulation in the cryptocurrency world will ensure the best of both worlds: It will reduce the legal value of the coins but make them tradable on both exchanges and exchanges-to-exchanges.

Proceed with Care

There is a lot of speculation as to the best way to manage crypto assets, and not every person can or should know the answers. One thing is known, though: when adapting regulations to suit cryptocurrencies, expect a heavy and full impact on economic activity.

The most important consideration is to not rush, particularly when regulation is taking place in volatile markets and in places where developing rules is far from desirable. Reducing volatility, for example, is a priority for the whole industry and could be expedited with a few rules.

Moreover, a slow implementation, which would be dictated by the rule-making process, is much better than a sudden and chaotic implementation, which could easily destroy the potential value of the crypto asset.

Given the amount of time and effort to consider and draft regulation, it is necessary to seek European Union policies, which in their nature tend to be regulated in a narrow and indirect way. The EU policies are clear, applicable and as effective as possible.

Of course, depending on the rate at which the cryptocurrency is developed, the institutional markets will also adapt. If cryptos are to gain legitimacy and trust, then the institutional market needs to evolve as well.

Respecting Innovation

There are two options for this: On the one hand, the cryptocurrency industry must make its code stable enough to pass federal regulation in its current form. On the other hand, it can simply discontinue development, knowing that the currency will lose significant value.

There is no reason to doubt that regulations and some form of rules will come out in the short term, but the decision is clearly not in the hands of those who put Bitcoin and the cryptos into the wild.

It is time to pay attention to those who can make it a lucrative business. Only then will the financial entities develop a balance between the price of the cryptocurrency itself and the stability of the code, and must monitor this balance closely.

One major question concerns the movement of funds into and out of these cryptocurrency funds. This could make them virtually impossible to understand at all, which would likely lead to a total collapse. The European Commission already has answers on this front: it will support common legislation based on cross-border rules.

Rather than implementing a full set of rules for cryptocurrencies, the EU should concentrate on areas of particular importance in the initial years of this new industry: central clearing, the creation of anonymous crypto accounts, liquidity in the cross-border market, exchange-based settlement, and normalization of micro-encryption.

The solution will be difficult and uneven, but it is necessary. The first step is for governments to provide a welcoming environment for the industry. Unless all currencies become legal and centrally controlled, it seems hard to believe that cryptocurrencies can remain unregulated for long.

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