Why most crypto regulations are inspired by traditional finance regulations
Why most crypto regulations are inspired by traditional finance regulations

Why most crypto regulations are inspired by traditional finance regulations

By Giorgi Mikhelidze - 6 Jun 2020

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The need for regulation was becoming more and more evident amid the increase of crypto users around the world. 

The fast pace of digitalization in almost all sectors – also in the crypto one – is creating new jobs and opportunities for millions of people. This vast process of a major shift in how we live is also changing our perception of different industries and phenomenons. 

Particular happenings and concepts are generally associated with specific notions and ideas, developed within our societies during centuries of change. Such status quos are evident in how different industries work and in social attitudes towards different matters in various locations. 

This is a very complex social structure which has been constructing itself for centuries. However, with the rise of the 21st century, this at a glance a perfect world order started coming to an end.

The main role in this process is played by digital technologies and its ability to substitute physical activities with virtual ones while making them faster and much more convenient. Efficiency is what really makes the 21st-century innovations so exciting and attractive. Their new features never fail to surprise the general public as the digital world keeps developing at a rapid pace. 

Not long ago, imagining the state of the world in which landline phones would be replaced with tiny smartphones would be impossible. Yet, here we are now in the era of smart technologies and gadgets. There is every type of digital accessories one might desire: Smart TVs, smart watches, and even smart home assistants. Such gadgets make our lives easier as we struggle to acknowledge how fast our day to day lives are changing. 

The shift of the financial sector and crypto

Not many industries were as distant from digital technology than finance. This field and major corporations within it always feared novelty and innovation. Many saw them as a threat to the well-functioning state of order. However, as Generation Z-ers are gradually overtaking the world, this industry realized the urgent need to make some drastic changes. 

The youngest of our societies are driven by the constant innovative process. They were born and brought up in the technological era and therefore, this environment is nothing new to them. They constantly demand new products and digital services with increased convenience and speed. 

They are one of the prime reasons why almost all commercial banks today have web or mobile platforms, ready for their customers. Living without them seems like a distant past. However, all of such spaces that practically represent virtual bank branches are quite new to us. Just 10 years ago, there were no neo banks or mobile wallets. 

Yet the year 2009 was the biggest game-changer for the financial industry throughout the new millennium. It marked a real revolution and the birth of the biggest innovation of modern times – crypto. Bitcoin, which today makes countless international headlines on a daily basis, was the world’s first decentralized virtual currency. Launched in 2009, it failed to gain momentum for years until its price exploded to exceed the $10,000 mark in 2017

When comparing the trading strategies of cryptos and other financial assets, it’s almost impossible not to see the very distinct similarities between them. For example, crypto order types that are usually limit orders or stop orders are very similar to FX order types that traders use on a daily basis to either remove some risk from the activity or automate it to a certain point.

However, it may just be a matter of time before the “traditional” trading methods shift completely to cryptos and have stocks and FX be the ones that carry this “exotic” label.

Crypto regulations around the world 

A soaring number of people actively use cryptocurrencies around the world. Their widespread utilization is, on one hand, a great achievement but on the other a big threat. Cryptos like Bitcoin promote themselves as decentralized, transparent yet anonymous currencies. During transactions with Bitcoins, if needed, every traceable mark can be removed, leaving only the operation ID which does not include any personal, identifiable information. 

Therefore, it is not a surprise that many criminal organizations started using virtual currencies in their illegal activities. This particularly grabbed the eyes of national governments after the exploded Bitcoin price back in 2017. 

In general, every financial regulation whether its monetary, fiscal or small regional piece of legislation is there because of a few major reasons. The vast majority of financial regulations are in place to prevent illegal activities, fraud, and other means of trickery. Others are more market-related and aim to boost a national or international economy. 

The situation is very similar in the case of crypto regulations. As they start becoming mainstream, the necessity of regulating this field proves to be more important and urgent than we thought. There are a growing number of calls from both national governments, as well as businesses and individuals, to put the use of cryptos into the legislative framework. 

On one hand, companies are interested in being able to run crypto-related businesses legally and without any problems. Being able to perform activities and utilize the benefits of crypto is an important thing for such entities. They are willing to pay taxes and remain strictly regulated by the state as far as cryptocurrencies are acknowledged as legitimate means of financial resources. 

Such cases have occurred in many countries around the world as a growing number of governments have started acknowledging and consequently taxing the use of cryptos. For example in Spain, taxes are regularly collected from crypto-users by the country’s financial authority. However, due to the fact that the approach of countries importantly varies, executing many international operations with crypto remains a major challenge. 

On the other hand, national governments have a great interest in legalizing and framing the use of cryptocurrencies within their economic systems. As the market capitalization of major currencies such as Bitcoin skyrockets, the part they play in economic growth and livelihood of businesses also increases. Therefore, allowing cryptos to circulate legally within the economy is an important boost for the market. 

The history of regulations repeats itself with crypto

Specific pieces of regulation about cryptos are obviously not similar to traditional financial restrictive frameworks. This should not be a surprise since virtual currencies are a very special and narrow niche that requires a specifically tailored approach. However, the links between reasons why regulations are implemented and in what way are absolutely evident. 

Today, we can clearly see that the crypto regulation is repeating the pattern of financial regulations that were implemented across the world throughout centuries. 


Giorgi Mikhelidze

Giorgi is a Georgia software developer with two years of experience trading on the financial markets. He is now working to spread the knowledge about the Blockchain in his country and share all of his findings and research to as many crypto enthusiasts as possible.

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