The finance officials of Group of Seven (G7) advanced countries met for their 12th meeting virtually due to the ongoing COVID-19 pandemic. The meeting was hosted by US Treasury Secretary Steven Mnuchin, where the officials discussed the evolution of digital currencies and crypto-assets.
All of the G7 finance ministers emphasized the need to regulate cryptocurrencies and prevent their use for illegal activities. The officials unanimously believe that digital payments and currencies are a boon to financial services; however, the usage needs to be regulated and supervised.
Ever since the news of the launch of Facebook-backed virtual currency, Libra, the finance officials of G7 believe that the use of cryptocurrency must be regulated to prevent money laundering and other digital frauds. The new digital currency wave is expected to make cross-border financial transactions simpler and faster; however, it could also bring grave concerns related to data security and affect the sovereignty of the international monetary system. Therefore, G7 finance ministers continue to stress that the lack of regulation of cryptocurrency can lead to cybersecurity threats, jeopardize consumer privacy, and flout applicable standards.
Impact of Regulations on Individual and Corporate Investment Portfolios and Margins
The usage of cryptocurrencies as financial instruments has increased much since the introduction of Bitcoin in 2009. It has become a common mode of payment, in addition to becoming a part of investment portfolios as a critical asset type for diversification. Investors can invest directly in cryptocurrencies by trading bitcoin future or make them a part of their portfolios by investing a small amount in their isa stocks and shares account or any other general investment account. Cryptocurrency has matured as a significant part of individual and corporate investment portfolios, offering more liquidity, higher stability, and narrower bid-ask spreads.
However, the lack of regulations around cryptocurrencies limits their usability. They are still subject to higher risks of fraud, cyber-attacks, and multiple forms of speculation due to the lack of regulation. Thus, it will be a beneficial move for investors to support the regulation of cryptocurrencies for them to be considered a new class of assets.
Additionally, regulations will also make it possible to put an actual valuation on the worth of cryptocurrency. The regulated marketplace will create a level playing field for all cryptocurrency investors, and the fake transactions will become harder to get away with. Ultimately, the price of cryptocurrencies will be based on their actual demand and supply economies, reducing unexplained volatility and increasing the long-term price predictability. Thus, cryptocurrencies will get to transform from being highly speculative to becoming usable assets post-regulation.
How Will The Regulations Affect Businesses That Accept Bitcoin
While some businesses and companies may see regulations as a burden, they will only bring more trust and stability to the industry. The use of Bitcoin and other digital currencies is beneficial for businesses; however, it comes with its set of risks and challenges that can be resolved with regulatory intervention.
Digital payment technology has made transactions simpler for businesses. It has brought about remarkable changes in the way consumers pay and businesses accept payment. Payments using cryptocurrency are easier, cheaper, and more secure. It has also helped enterprises acquire more new customers, increase their brand visibility, become accessible to the whole world, and reduce transaction frauds to a large extent. Thus, digital currencies open a world of opportunities for businesses to grow and expand.
However, despite the numerous benefits, the usage of cryptocurrencies is in its initial stage and comes with its drawbacks and shortcomings. The businesses must support and accept the desire of G7 finance officials to regulate cryptocurrency to ensure that the industry grows in a legalized and regulated manner, and there are no unregulated loopholes. The regulated environment will help not only the cryptocurrency industry but also the businesses and consumers.
As a bottom line, G7 finance officials’ desire to regulate cryptocurrencies appears justified in so many ways. The word regulation in itself is against the libertarian set of beliefs in the crypto community, but digital currencies without constraints are like wildfire. Therefore, regulation will not only make the industry resilient in the long run but also make the environment more safe, secure, and sustainable. Government agencies and economies will also be able to drive more robust investments and ensure better funding in a regulated ecosystem.
Regulations may lead to short-term drawbacks to the crypto industry, including poor user experience and investor exclusivity; however, the pros outweigh the cons. The regulations may seem stifling to the revolutionary growth of digital currencies presently, but the long-term upsides are far too liberating and encouraging. Therefore, the demand for G7 officials to regulate the crypto industry is quite valid and addresses both the expected and unexpected regulatory risks. The regulatory control over the cryptocurrency industry will encourage its mass adoption and provide a controlled environment for businesses and investors to participate in the growth. Regulations in the crypto market are, therefore, not a death knell but the signal to a new start!