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 crypto-based technology projects, like Ethereum, Cardano or Polkadot have followed the price of Bitcoin.
As innovative as they are, cryptocurrencies are not easy to introduce into the real world because they do not fit into the current regulatory framework. That’s why buying crypto is still not that simple, but you can check out the Bitcoin Price Chart or any cryptographic data to improve your strategy. Not all exchanges are allowed to operate in certain regions of the world, and the lack of digital literacy contributes to low-speed adoption of the crypto ecosystem.
Therefore, to ensure global adoption, cryptocurrencies must be regulated by official authorities to ensure their security and reliability. So here’s what investors should expect this year and beyond.
US stablecoin issuers will be regulated
Unlike cryptocurrencies, stablecoins are tokens tied to another, usually official, currency like the US dollar or commodities like gold. There are three main types of stablecoins:
- Fiat-based stablecoins are backed by official fiat currency which provides stability and security. An example of such a coin is Tether USDT, and it is also one of the largest cryptocurrencies by market capitalization;
- Crypto-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 they are similar to central banks;
Therefore, stablecoins are closer to the real-world financial system, which is why the US government is considering regulating some of them. However, stablecoins could be affected by the European Markets in Crypto-Assets (MiCA) regulation, which will introduce stricter implementations for stablecoin issuers to ensure transparency for the end consumer. It may be possible to assess money laundering and tax evasion this year, especially in relation to crypto exchanges.
More ETFs will be accepted
Crypto exchange-traded funds have been trending in 2023 as many companies have been pitching their plans for a few years now, and only a few are awaiting SEC approval. But 2024 could be more important for BTC and ETH ETFs, as their value has increased as many investors become interested in them.
These ETFs bring many more benefits to a portfolio than any other digital asset, as they are not directly tied to the cryptocurrency but rather reflect its value without exposing the user to volatility risks. The overall positive sentiment towards ETFs has led the market to explode in late 2023, so 2024 could finally tackle their regulation.
It is nevertheless possible that only BTC ETF will get their recognition as the authorities still do not trust Ethereum or any of its associated assets. Indeed, 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, blockchains 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 aimed to take enforcement action against these projects. Indeed, in the case of DeFi mixer, Tornado Cash, where money laundering has been facilitated, it can be argued that the newness of the ecosystem exposes it to such risks.
However, its potential is significant, which is why DeFi could face 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 advancements for DeFi in the future.
Better AI and crypto monitoring
Artificial intelligence in crypto is on the rise because it can improve decentralization through automation. The hype around AI in 2023 has focused a lot of attention on the risks of such a service, ranging from eliminating jobs to being a tool for illicit behavior. However, the potential of AI in crypto could help solve many of its existing problems. For example, AI can be used to analyze market trends and identify potential threats so that investors can evaluate and modify their investment strategy. This could help them mitigate volatility, which would solve crypto’s biggest challenge.
The EU has already introduced the AI Act, which provides a regulatory framework that businesses and regular users must consider before exploiting these two technologies. Furthermore, it might be possible for other fields to look at AI from this perspective and design appropriate policies.
Stock market lawsuits could continue
A few crypto exchanges have faced serious lawsuits from the SEC in 2023 because the authority considers them untrustworthy to the public. Coinbase and Kraken are among the largest crypto exchanges on the market, and they have been dragged by the SEC due to their failure to register their assets. Indeed, the SEC announced months before that all exchanges must follow their protocols to continue operating. But even though their guidelines were unclear overall, they quickly took legal action against these companies.
It might be possible for them to continue into 2024 as well, since most have not even gotten to the bottom of the problem. Although the SEC has used a forceful method to deal with cryptocurrencies, the market is indeed prone to illegal securities due to decentralization. However, most of these blockchains and exchanges should better prepare their validators and nodes to safeguard the ecosystems. At the same time, the government could provide training courses for users to avoid falling victim to hackers.
Conclusion
The cryptocurrency market has grown significantly in recent years, but this media coverage has exposed it to several challenges that now require regulation to protect users. Therefore, 2024 could be the year where some of these issues are resolved, such as money laundering, so that investors and developers can use these tools and tokens. Still, many of the upcoming regulations could hamper investments more than before, so people should keep up to date with the latest laws.