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Government Regulation of Cryptocurrencies

Nov 30, 2022 3 min read

Decentralization and regulation absence are the main principles on which cryptocurrency is based. But with the increasing crypto adoption, the growth of its use cases, and with the increase of fraud and scam cases, governments in different countries are getting increasingly interested in crypto and the way to regulate it.

Why Does the Government Want to Regulate the Cryptocurrency Market?

There are a number of reasons why governments are interested in regulating crypto. The most important ones are the following.

Lack of monetary control

Traditionally, monetary policies and control over money were performed by the government. All countries have their central banks that issue national currencies.

Cryptocurrency is borderless and cannot be controlled by a single entity. Thus, it cannot be controlled by a central bank or a government.

The outflow of money from the country

Transactions on a blockchain aren’t limited to a specific country or region. Anybody who has a wallet and some coins in it can make swaps with whoever one wants.

But every government is highly interested in retaining the wealth of its citizens within the country. That’s why in some cases, specific measures may apply that limit or even prohibit the wealth outflow from the country.

It is impossible to implement with cryptocurrency though.

Money laundering

It is very difficult to determine the purpose for which crypto is sent. That’s why it is easy to use crypto for criminal activities including money laundering. Regulating crypto in this aspect would be beneficial.

Taxation

Taxing income on crypto is a great way to generate an additional flow of income for any government. However, many countries still cannot decide what the status of cryptocurrency is and thus, cannot agree on how (and whether) income from crypto shall be taxed in any way.

Criminal activity

Drug trafficking, illegal substance sales, money laundering, or any other criminal activities are difficult to perform by using bank accounts. But crypto is not controlled and thus, frequently used by criminals. Even though there are cases when crypto transactions were tracked and crypto on the wallets of criminals was confiscated, these cases are still rare.

Power consumption

Mining PoW cryptocurrencies is extremely energy-consuming. This is another concern of regulators when it comes to cryptocurrency.

What US Government Agencies Regulate Cryptocurrency

In the US, cryptocurrencies fall under three jurisdictions:

  • The SEC regulates any investment activities in cryptocurrencies.
  • The CTFC takes care of crimes involving interstate commerce.
  • The IRS ensures the taxes are paid (income or capital gains taxes).

New Bill Regulating Cryptocurrency

The new bill regulating cryptocurrency was introduced by Senators Gillibrand and Cynthia Lummis. The bill is going to include tax requirements for various digital assets including stablecoins. It is also going to impose stricter requirements for stablecoins. It will have some provisions on cybersecurity, self-regulatory organizations, and more disclosure requirements. The bill is also about some provisions about studying the energy impact of crypto mining.

Conclusion

Even though crypto is not supposed to be regulated, we aren’t ready to operate in a fully decentralized world. The recent collapses in the industry have shown that clearly. Therefore, regulation in the industry is coming, it doesn't matter whether we want it or not.

FAQ

Can you regulate cryptocurrency?

Yes, cryptocurrency can be regulated even though for now, not completely.

Who currently regulates cryptocurrency?

The market is divided into several sectors. Different sectors are regulated by different regulators. Also, not all countries have a unified attitude to cryptocurrency, therefore, regulation of this asset differs in different countries, too.

Why should we regulate cryptocurrency?

Cryptocurrency is frequently used for criminal activities such as sales of illicit substances, cybercrime, etc. Tracking these activities is very difficult or impossible. That’s why regulation is needed to reduce and finally eliminate the cases of illegal uses of crypto.

Is government regulation good for cryptocurrency?

It indeed depends on the regulation. Some countries such as China and India are trying to ban decentralized cryptocurrencies. This definitely doesn’t contribute to the market development and the exploration of the crypto market potential. Other countries such as the UK are trying to fit cryptocurrency into the existing financial system which definitely has a positive impact on market development.

Why is the US government trying to regulate crypto?

There are multiple reasons why the US government wants to regulate crypto. Among them, there are such reasons as money laundering, illegal activities, and crimes made by using crypto, a high percentage of scams, and finally, crypto is a rapidly growing market that can bring significant benefits to the government if regulated properly.


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