Should the US government impose stricter regulations on crypto trading?

[ad_1]

Despite the increasingly common nature of an investment like Bitcoin (CRYPTO: BTC), the crypto market is still often referred to as the Wild West. Should crypto investing be more regulated than it is now? In this Backstage Pass segment, recorded on November 3, Fool contributors Trevor Jennevine, Brian Withers and Rachel Warren take a look at this complicated issue and the wider implications of tighter crypto regulations.

Trevor Jennevine: At the end of October there was a new digital currency or a new cryptocurrency, Squid, which really caught the attention of investors. It is in no way affiliated with Netflix, but it is certainly a play from the popular Squid Game show. Either way, this cryptocurrency climbed 23,000,000% between October 26 and November 1 according to the Washington Post. I’ve seen different numbers, but they’re all over hundreds of thousands of percentages, or even millions of percentage points. In a few days, it’s breathtaking.

Earlier this week, the project crashed when the creators depleted the cryptocurrency’s liquidity, taking around $ 3 million. The creator or creators, the website is now down, the social media accounts are inactive or in the case of Twitter it was banned for suspicious or unusual activity and there were many issues with hindsight indicating that it was a scam. These were misspellings in the white paper. There was a blocking period, built into the protocol, where after the purchase you were not allowed to sell for a period of time.

They named it something really catchy, even though it had nothing to do with the Netflix Show and it underscores something SEC Chairman Gary Gensler has been saying for some time. He recently likened the cryptocurrency to a teenager and said it would not reach adulthood without federal oversight, then highlighted issues such as money laundering and tax compliance.

But the cryptocurrency itself was designed to eliminate the need for regulation of financial institutions such as banks or payment processors. Blockchain technology replaces these institutions with miners, and the miners become responsible for consolidating transactions and in doing so create new currency.

This question has two parts. First, how do you think the cryptocurrency community will react to tighter oversight from regulators like the SEC? Brian.

Brian Withers: Yeah, that’s a tough question. I hear the story of the Squid digital currency and I am sorry for the people who thought they were investing in a legitimate business and the things they are doing, and it is certainly unfortunate. I don’t know if the regulators [laughs] if there had been any regulations in place what would have stopped these squids from trying to scam people with their money, I don’t know.

Unfortunately regulation always follows technology and it is difficult, how do you regulate something so broad and just a large number of people and entities involved? I’m really not sure and I think all regulators, rather than coming with a heavy hammer, are going to dive into it bit by bit. I’m not sure if the cryptocurrency will even notice an impact for the foreseeable future. What about you Rachel?

Rachel Warren: Yeah. It’s a sad story, I agree. I feel bad for people who thought they were investing in legitimate crypto and clearly got a really bad surprise. I think one of the things that’s interesting to note with some of these cryptos, especially the ones that seem to be gaining attention online quickly and going downhill again. I think it plays into some of those lower emotions that you struggle with as an investor in the tug of war between fear and greed.

There is this temptation because there is this idea that some of these cryptos could make you rich overnight, there are people who have amassed huge amounts of wealth, although they are, I think , in the minority among these cryptos. I think it’s wide. I don’t think the cryptocurrency community will respond particularly well to surveillance, but I just think surveillance is needed in a much larger capacity than it currently is.

Interestingly, there is a new law that is being considered the last time I checked this is still true in the bipartisan infrastructure bill which would essentially require companies that facilitate crypto transactions through tax information on these transactions to the IRS and the idea that it would make it easier for investors to manage this from a tax perspective, but again, further embodying what is happening with the crypto craze in the current law. But you look at examples from other countries that have regulated cryptocurrency. An interesting one that I found was Indonesia.

Initially, the country banned cryptocurrency, then legalized it and now any entity that trades crypto assets, primarily as commodity futures, has to comply with certain laws. They must report to the Indonesian Financial Transactions Analysis and Reporting Center. Similar regulations are in place in countries like the UK, Singapore and even Canada. The fact that we don’t have a broader federal regulatory system in place for crypto, I understand that the technology is still very advanced, but I really think it has to happen.

Jennevine: I think those are two big points. I don’t think the crypto community will be happy with the regulations, but I think the regulations are important. I think investors who lost their money on Squid, I think it’s terrible. When I pointed out that in hindsight it’s easy to maybe see some of the signs that this was a scam, it’s much harder to see these things when you actually go through them. What happened is terrible. However, in the long run, as Brian said, I’m not sure how the regulations will actually impact the cryptocurrency market in general.

China has made cryptocurrency transactions illegal. They banned citizens from working for crypto-related companies, which initially caused a massive sell-off. Whenever news comes up, the crypto market sells. But since his return, he has reached new heights.

I recently saw a Bloomberg report that said maybe new crypto investors in China might be deterred from entering the market. But those who have been there actually saw it as a buying opportunity. They haven’t really stopped trading. It is designed to operate without government oversight. There are some ways around government crackdown and that is exactly what is happening.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

[ad_2]