What is happening with cryptocurrency?
After a historical rise to fame and value in the past year, the cryptocurrency market as a whole took a massive dip in the past week as more countries have put forth regulations.
Cryptocurrency’s recent founding and name recognition have made it a target for regulators due to its potential as an unregulated and universal medium of exchange. A large part of achieving financial fluency is understanding the regulation that ties the markets down.
With meteoric growth and record-setting returns dominating headlines, it was only a matter of time before the government intervened.
Okay, but what’s new?
- China announced in September that it was banning cryptocurrency exchanges from operating domestically while prohibiting ICOs (Initial Coin Offerings).
- South Korea announced that cryptocurrency regulation will be implemented in the near future while hinting that it might also soon completely ban the trading of digital currencies.
- Germany joined in with an announcement reiterating the imminence and necessity of cryptocurrency regulation, emphasizing in particular the importance of universal, cooperative legislation across the international community.
How is this moving our markets? Let’s use our financial fluency tools to take a closer look.
Why does crypto regulation matter?
The foundation of cryptos’ success is its decentralized security and unregulated market, but that all is now being called into question.
After recent announcements, Bitcoin and nearly every other major digital currency dropped by over 10%. Cryptocurrency is one of the most volatile securities in markets today, however, few headlines have had as negative of an impact on crypto price levels as they had in the past week. Bitcoin was hovering around $14,000 for the past week before dipping to $11,000.
Potential regulations will force investors to decide whether regulation will legitimize the crypto market or burst the bubble. Granted, by regulating this immature market, financial regulators are admitting that the security is valid. Both Japan and Australia recognized Bitcoin (BTC) as legal tender last April and May, respectively. With that said, aggressive regulation also simultaneously limits cryptos’ potential for widespread adoption.
Regardless of recent developments, cryptocurrency’s staying power is growing.
Consumers are wary of centralized banks. They’re skeptical of financial professionals’ own disagreement with cryptocurrency’s potential and are actively endorsing a transparent, decentralized, and unregulated market.
So the question remains: how will they react to regulation? So far, not well. By surrounding yourself with a greater understanding of the markets, you can continue to step closer to financial fluency.