How Growing Crypto Regulations May Affect Adoption
The cryptocurrency space is one of the most popular industries, especially among young people. Investors buy digital assets to enjoy future price growth. This creates an avenue to generate passive income.
While numerous countries have tagged cryptocurrencies as high-risk investments, many traders record substantial profits daily. Yet, crypto regulations in the US and other countries may be a source of concern to enthusiasts.
As cryptocurrencies become more popular worldwide, many institutions and governments have moved towards regulating and controlling the industry. It is safe to mention that there are numerous regulations on cryptocurrencies globally. However, many people fear that the ever-growing regulations may discourage potential investors from venturing into cryptocurrencies.
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Why Governments Regulate Cryptocurrencies
Governments have raised diverse reasons for regulating this emerging industry. While many nations have yet to set up rules to govern them, others regularly introduce new rules. It’s also worth noting that there are crypto regulation by country. Here are some popular reasons for cryptocurrency regulations.
1. To control financial losses: One of the major reasons government regulates the blockchain industry is to prevent financial losses. Since cryptocurrencies are volatile, bad actors may try to manipulate the market for financial gains. For instance, when whales pump and dump digital assets, others who bought into the project may lose money.
2. Extortion: Another reason for regulations is the need to prevent extortion. Hackers have reportedly stolen data from sites to extort businesses. Bad actors threaten to sell off data or release it to the public if firms refuse to meet their demands. Often, they receive ransomware through Bitcoin or altcoins. And because these assets are almost impossible to trace, law enforcement agencies find it challenging to recover funds.
3. Money laundering: Criminals may also leverage cryptocurrencies to fund crime. And since transfers are anonymous, many bad actors get away with crime. This led to government involvement in the growing space. With this, users may enjoy some cryptocurrency regulation benefits.
Cryptocurrency Regulations In Some Countries
India:
Indian authorities have taken several steps to regulate the crypto market, including levying tax on cryptocurrencies. For the past few years, the government’s stance on digital assets has been vague, essentially discouraging some members of the country.
In February, the country’s Finance Minister, Nirmala Sitharaman, shared a major announcement regarding cryptocurrencies. She revealed that the authorities would levy 30% on income generated from crypto transactions. However, this announcement confused the public since the Indian government had previously planned to ban cryptocurrencies.
It is also important to clarify that cryptocurrencies are not banned in India, but the Reserve Bank of India’s directive to financial institutions confused citizens. The central bank prohibited financial institutions from facilitating crypto services and did not prohibit people from holding digital assets.
Japan:
This country sees Bitcoin and altcoins as property. Crypto exchanges in Japan also benefit from the positive outlook on digital assets.
However, after a series of hacks of crypto exchanges, the country is looking to regulate them more efficiently. To prevent future hacks, Japan has put stricter regulations for exchanges in place. Now, exchanges have to be registered with FSA and meet certain security standards to prevent future breaches.
China:
Cryptocurrency is not seen as legal tender in China. Crypto regulation in China is also one of the strictest in the industry. In 2013, the republic banned banks from facilitating Bitcoin transactions. The government also prohibited initial coin offerings and crypto exchanges, making it impossible for the populace to access related services.
Additionally, the world’s most-populous country banned crypto mining. Before 2021, China used to be one of the most preferred places for crypto mining. After prohibiting crypto mining, the government moved further to outlaw cryptocurrencies. While some exchanges are running in the country illegally, the government’s harsh law makes it challenging for citizens to own digital assets.
China is also working on a central bank digital currency. Unlike cryptocurrencies, the government will control and monitor this digital currency.
United State’s Stance On Crypto Tax
The US is one of the most influential states in the crypto space. This is not surprising because large trading volumes come from the US. Today, Bitcoin, Ethereum, and every other cryptocurrency are taxable in the United States.
The Internal Revenue Service (IRS) treats digital assets like Ethereum as property, making them taxable under the law. Your cryptocurrency will be taxed as assets, like stocks. The crypto space is one of the fastest-rising industries, helping investors record significant profits.
You need to pay capital gain tax when selling digital currency for fiat, sending cryptocurrency as a gift, purchasing goods and services, and swapping assets for another.
Why Regulations May Kill Adoption
Crypto regulation is a source of concern for cryptocurrency enthusiasts and businesses. While some countries have imposed outright bans, others look to tax heavily — a way to discourage investing. This may kill adoption if governments continue to discourage trading and investment.
Banning cryptocurrencies would deprive citizens of holding or exploring the digital asset space. This significantly affects adoption because owning, trading, or investing in cryptocurrencies would be illegal, leading to financial burden or jail time.
Heavily taxing crypto-related transactions may also affect interest. When tax rates are too high, people may opt for investments with lower tax rates. Crypto exchanges may also suffer when governments impose high tax rates. This may affect how accessible crypto-related services are to citizens.
Conclusion
Many governments have imposed bans on cryptocurrencies, limiting adoption in certain regions. Other countries have vague and confusing stands on cryptocurrency investments. This has made it challenging for citizens in those countries to enjoy exposure to this asset class.
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