Over the past year, there has been a lot of talk about cryptocurrency regulation.
Some people say that regulation is against everything that crypto stands for, while others say we need regulation in order for crypto to be successful in the long term.
While the future is unclear about when crypto regulation is coming.
One thing that is clear is that crypto regulation will bring both positive and negative changes.
In this article, we cover both the pros and cons of crypto regulation and what the future could hold.
Pros
Reduction in fraudulent projects
Regulation makes raising money more difficult for bad or fraudulent projects.
Anyone in the DeFi space has heard about fraudulent crypto projects convincing investors to invest their hard-earned money into their project.
These projects raise a large amount of money then soon after both the founders of the project and the money disappear.
With regulation, any project labeled “security” will have to register with the SEC, this makes it less likely that a fraudulent project will disappear with investors' money.
Industry-Wide Legitimacy
Many institutional investors are unwilling to invest in crypto without regulation.
These institutional investors are responsible for investing other people's money.
Without regulation in crypto, it can be argued that institutional investors risk much more than retail investors.
Not only do they risk financial loss for themselves and their clients.
They also risk penalties and fines from government agencies, and reputational damage.
.
It is speculated that once institutional investors see crypto as a more regulated and legitimate space, demand for crypto will skyrocket and the crypto prices will follow.
Cons
Exclusion of Smaller Projects
While regulation will lead to more trustworthy projects, it will also lead to the exclusion of smaller projects with less money.
Currently, without regulation, early-stage and small projects can raise money through Initial Coin Offerings or ICO’s.
ICO’s allow projects to offer early investors tokens at a discounted price, before the project launches.
This allows the project to raise money quickly to pay for expenses.
It also allows early investors to get discounted tokens that could result in huge gains once the project launches.
With regulation, it will be difficult for small early-stage projects to raise money through ICOs.
They would first have to register with the SEC and pay filing fees.
Then they would need to pay for attorney fees, accountant fees, investment banker fees, and any additional fees required to make sure their project is compliant with the regulations.
All of these expenses would have to be paid for before they can offer an ICO to raise money for the project.
Exclusion of Investors
Current ICOs without regulation, allow all investors the opportunity to invest in early-stage projects.
With regulation, all investors who take part in ICOs will have to be accredited investors.
In order to qualify as an accredited investor, you must have a net worth of 1 million dollars or make $200,000 in yearly income.
This means most investors will be unable to take part in ICOs.
Conclusion
These are only a few of the pros and cons of cryptocurrency regulation.
If you have more pros and cons you’d like to share feel free to leave a comment.
If you would like to learn more about cryptocurrency check out our ThinkCrypto: Cryptocurrency Beginners Course.
If you liked this blog check out some of our other blog posts.