As the cryptocurrency market recovers from recent volatility, several positive external influences have helped restore investors’ faith in its sector. Lower inflation figures, relief over SEC allegations against Binance exchange and increased global economic activities are some of the main forces contributing to its price stabilization; others include Dogecoin, BNB and Solana among many others.
Regulatory authorities are paying closer attention to issues surrounding cryptocurrency, such as their possible impact on financial stability and protecting vulnerable customers. Unfortunately, cryptocurrency’s rapid rise has made it hard for regulators to stay abreast of developments, making coordinating policies and regulations across several US agencies such as Securities and Exchange Commission (SEC), Treasury’s FinCEN unit, Federal Reserve Board and Commodity Futures Trading Commission (CFTC) difficult.
At present, regulatory environments appear to be shifting. For example, in January 2022 the Spanish securities regulator (CNMV) stated it will regulate rampant promotion of crypto assets via social media influencers in order to educate potential investors of risks involved with these assets. Meanwhile in the U.S.A, both SEC and DOJ have taken steps to make clear they will continue prosecuting money laundering as well as criminal activity associated with cryptocurrency use.
Many countries remain uncertain how best to regulate this sector. While some have reached an inflection point where they are considering significant actions – such as classifying bitcoin as commodities or banning their use entirely – most countries remain reluctant to impede innovation or risk wholesale financial stability at retail customer’s expense.
A recent paper from the Financial Stability Board (FSB) highlighted how crypto-assets make up a relatively minor share of overall financial system assets, but are quickly developing and present unique challenges that necessitate preemptive policy responses. International cooperation was strongly advocated to avoid regulatory gaps, fragmentation or arbitrage occurring.
Cryptocurrencies could play an especially key role here due to their global footprint and growing recognition that their technology may contribute to financial inclusion, among other advantages.
Even as interest in cryptos continues to surge, public perception remains mixed. Some remain wary of their technology and risks associated with investing in them while others are drawn by promises of greater financial inclusion and lower transaction costs.
Research suggests that low cost cryptos could provide access to financial services for underserved consumers. This has been one of the primary drivers behind digital currencies like Bitcoin – popularly used by migrants sending money home or purchasing products and services within their home countries – and other digital currencies designed to tackle problems like poverty and inequality such as Kenya’s BitPesa designed specifically to assist micro-entrepreneurs.