Rising demand for crypto regulation.
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Rising demand for crypto regulation.

January 7, 2025No Comments

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Rising Demand for Crypto Regulation: Ensuring Stability and Security in the Market

India’s approach to cryptocurrency regulation has been to wait and see. However, because their transactions are international, a worldwide agreement is required to prevent regulatory arbitrage. The irony is that, despite its vision of an unregulated financial ecosystem, cryptocurrencies now rely on it for stability and wider acceptance.

 

Cryptocurrency was one of 2024’s major winners. Bitcoin surged beyond $1,000,000 in December as a result of US President-elect Donald Trump and his advisor Elon Musk supporting cryptocurrency. Following the collapse of the cryptocurrency exchange FTX in 2022, which caused billions of dollars in damages, this was a spectacular return.

 

The global banking system was widely distrusted as a result of the 2008 financial crisis. When Bitcoin, the first successful digital currency, originally emerged in 2009, it was viewed as an attempt to get around what was thought to be a burdensome and ineffectual regulatory framework. Cryptocurrencies were thought to provide more security and transparency in financial transactions.

However, because it is a disruptive technology, its legitimacy now causes disagreements amongst specialists and laypeople. Although many people still consider it to be a game of smoke and mirrors, younger generations who are tech-savvy support it. The current value of the world’s cryptocurrency industry is approximately $3 trillion.

 

The inherent worth of cryptocurrencies is significant given this market volume. In essence, cryptocurrency is programming software, and its perceived investment potential and exchange momentum determine its worth. The value of Bitcoin is also ascribed to the fact that almost 19 million of its 21 million units have already been mined.

 

These days, there is also a growing trend of using cryptocurrency for illicit activities. They were utilized for illegal transactions as they were able to evade regulators at first. Because of the speed and stealth of transactions they provide, they are known to be used for money laundering. Crypto frauds are also on the rise. Crypto investors are routinely targeted by some international cybercrime syndicates. In 2023, there were about 840 complaints about cryptocurrency in India, with losses totaling hundreds of crores of rupees. In 2021, investors were defrauded of ~1,200 crore by a single initial coin offering.

Different countries have approached regulation in different ways. Countries that believe cryptocurrencies have the potential to undermine the state have outlawed them. Others acknowledge them as a class of assets. Additionally, they are now accepted as a form of payment in a few.

 

India has chosen to wait and observe during this time. In India, there is still no complete regulatory structure even though there isn’t an official prohibition. It is regarded as a digital asset that can be purchased and sold on cryptocurrency exchanges, with a 30% tax applied to transactions.

 

However, because to the cross-border nature of these transactions, a worldwide agreement is required to prevent regulatory arbitrage. Ironically, despite the fact that cryptocurrencies envisioned a financial system devoid of regulation, regulation is now necessary for their stability and wider acceptance.

 

There is now more volatility in the bitcoin portfolio as a result of a vibrant online community adding meme or fun currencies. These tokens, which are based on video game characters or memes, have seen significant growth recently.`� Its secret sauce is a collective culture governed by shared sentiments. However, in the absence of any underlying value, that adds to volatility.

Its value instantly skyrocketed by 900 percent when Elon Musk briefly changed his name on X to Kekius Maximus, a token that is sold on centralized cryptocurrency platforms. Additionally, market sentiment abruptly drove Dogecoin up about 800%. Since the founder of Ethereum contributed $1 billion worth of Shiba Inu tokens to help with COVID relief in India, the meme coin is well-liked in India and has an emotional connection. However, because of their fast price fluctuations, meme coins are susceptible to risky pump-and-dump scams. However, stablecoins, which are supported by real assets, have the potential to devalue national currencies.

 

India is a desirable market in the midst of such breakneck boom because of its estimated 2 crore cryptocurrency investors, the majority of whom are tech-savvy individuals under 35. When the cryptocurrency exchange Binance paid the Financial Intelligence Unit a punishment of Rs 18.82 crore, it returned to India, which is understandable.

 

Exchange-traded funds have made it possible for investors to participate in the intricate dynamics of cryptocurrency trading without having to do so personally. Additionally, this has raised the legitimacy of cryptocurrency as an asset class and institutional engagement. Nonetheless, raising investor awareness of the risks is also crucial. Although it is evident that the authorities are monitoring the industry, regulations are always changing and lessons are still being learned.

 

Although the ordinary investor does not yet completely comprehend the basics of cryptocurrency, it is here to stay. Caution should be the guiding principle as the story becomes more complex and involves the constant innovation brought about by hackers, crypto developers, newer algorithms, and cybercriminals.

FAQ

The increasing popularity and value of cryptocurrencies have led to concerns about security, stability, and the potential for illicit activities like money laundering and fraud. As a result, there is growing demand for regulatory frameworks to ensure the legitimacy of cryptocurrencies, protect investors, and prevent misuse in illegal activities.

India has adopted a wait-and-watch approach to cryptocurrency regulation. While it hasn’t officially banned cryptocurrencies, there is no comprehensive regulatory structure in place. Cryptocurrencies are treated as digital assets with a 30% tax on transactions, but the need for international agreements to regulate cross-border crypto activities remains.

Cryptocurrency investments are highly volatile and susceptible to risks like pump-and-dump schemes, fraud, and cyberattacks. Additionally, meme coins and tokens based on internet trends can experience rapid and unpredictable price fluctuations, leading to significant losses for investors.

Different countries have taken varied approaches to cryptocurrency regulation. Some have banned cryptocurrencies due to concerns over financial stability, while others recognize them as assets or accept them as a form of payment. A global agreement is essential to prevent regulatory arbitrage, where crypto transactions move to jurisdictions with less stringent regulations.

Stablecoins, backed by real-world assets, are seen as more stable than traditional cryptocurrencies and have the potential to affect national currencies. On the other hand, meme coins, driven by internet culture and social media trends, often experience rapid growth but are highly volatile and prone to scams, making them risky investments.

Last updated on January 7, 2025

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