It’s no secret that governments are having a hard time regulating the Crypto industry. The current confusion and uncertainty in the sector are comparable to what was witnessed during the dot-com bubble. At the time, Alan Greenspan, the Federal Reserve chairman said investors were the main victims. Is this risk on investors comparable to the virtual currencies today? Since recording their highest prices towards the end of last year and early this year, most altcoins have lost their value significantly. At the same time, about $6 billion has been raised through ICOs.
ICOs Essential In Raising Capital
Initial coin offerings (ICOs) work almost in the same way as initial public offerings (IPOs) as they help businesses to raise capital. Nevertheless, the two are different in various ways. Whereas an IPO gives the investors the company stock, an ICO gives the contributors the company token. Over time, however, more ICO types have been developed.
Since the introduction of ICOs about five years ago, they have continued to become more popular. One factor that has driven their growth is that they enable businesses to access liquidity market directly. Nonetheless, it has become quite challenging to regulate ICOs. The Commodity Futures Trading Commission (CFTC) regulates the commodities while the Securities and Exchange Commission (SEC) regulates stocks. However, there is no regulatory body for the Cryptocurrencies.
Why Crypto Regulation Is Important
Although ICOs have helped many businesses to have direct access to the much-need liquidity market, lack of regulation has led to an increase in their use for fraud. The authorities are therefore determined to protect unsuspecting investors from losing their money. Moreover, there are fears that ICOs could also be used for money laundering or financing terrorism. The governments are also looking for ways to tax them.
Authorities are having a hard time categorizing Cryptocurrencies as securities or commodities. Some jurisdictions are treating the virtual currencies as taxable property while others are considering them as commodities or even money equivalent. There is literary a legal vacuum on which to subject the altcoins to.
Regulating The Crypto Sector
Although it is clear that is some progress in Cryptocurrency regulation, many countries are still unsure how they will govern the sector. SEC’s aggressive posture will play a major role in encouraging ICO project leaders to be sincere. Given that it is illegal to sell unregistered securities in America, most companies are reconsidering their decisions to enter the market.
In regulating the Cryptocurrencies, the governments are working towards combatting fraud, while still allowing businesses to enjoy the benefits of this technology. Most people are wary that due to the existing confusion, there is a risk of overregulating the sector that will then hinder innovation.
What is clear now is that the governments are determined to control phony ICOs and protect the businesses against fraud. Governments are working around the clock and it is clear the sector will be subject to regulation. Despite fears by most people that the regulations will hinder innovation and the use of the technology, the opposite is actually true. Once the Cryptocurrency regulations are put in place, more investors will have confidence in putting their money in the sector.