Bitcoin regulation remains a sensitive subject, eliciting mixed reactions from economists and government regulators.
Bitcoin is an alternative digital currency without a central authority that regulates its creation and usage in the economy. Several public members, including economists, applaud Bitcoin’s decentralization as a significant step toward democratizing money. However, some government regulators are concerned that cryptocurrencies such as Bitcoin operate in a free market that requires strict regulations to protect consumers.
While no universal consensus exists on Bitcoin regulations, several countries accept and recognize Bitcoin as a legitimate transaction currency and asset. Some governments have implemented various cryptocurrency rules, including licensing requirements for crypto businesses and taxation laws for crypto investments. Here are some of the critical suggestions on how governments could regulate Bitcoin.
Tighter Measures for Crypto Businesses
Experts say crypto businesses could be the first casualties if governments decide to regulate crypto. The businesses include crypto exchanges, brokerages, money processors, and other institutions that deal in crypto. That is because they are the marketplaces for crypto, bringing digital currencies closer to the general public.
Several governments have been pushing for stricter regulations for crypto businesses to protect consumers against fraud. Many countries currently require crypto exchange platforms to acquire licenses as other ordinary money businesses. Some experts believe the next step would be eliminating decentralized or P2P exchanges and introducing stricter measures for monitoring crypto transactions.
Although implementing tighter regulations for crypto businesses might seem like a strategic move toward protecting investors and preventing fraud, it threatens Bitcoin users’ autonomy. Thus, it could quickly push away investors and discourage Bitcoin adoption.
Crypto Transaction Costs
Other financial experts and legislators believe governments could also try to regulate Bitcoin by introducing measures that increase the costs of transacting crypto. One of the ways they could do that is by taxing any fiat currency that people use to cash out from virtual tokens. However, such regulation must apply to specific coins, and crypto users could turn to other digital coins to cash out.
The above option could also be ineffective because most crypto enthusiasts today prefer to use their Bitcoin as an exchange medium or payment for essential goods and services. That significantly reduces the need for cashing out Bitcoin in fiat money. You can directly process Bitcoin payments to merchants worldwide from your wallet or a trusted crypto platform like bitcode-prime.live
Many governments that allow crypto, for example, the US, consider crypto investments property subject to income and capital gains taxes like physical assets. Anyone who transacts Bitcoin or other cryptocurrencies within the year must report those transactions to the IRS when filing taxes. The tax regulator has published new rules for filing and paying taxes on crypto investments that all US taxpayers must now follow.
The rules usually vary from country to country. Still, taxation is one of the critical areas that regulators will continue to focus on as cryptocurrencies gain traction in the global economy. Nevertheless, more tax requirements would significantly hinder Bitcoin’s profitability, discouraging investors and innovation. On the other hand, it could enable governments to attract more revenues from the crypto ecosystem.
Bitcoin ETFs and ICOs
Institutional investors have engaged in bitter exchanges with the SEC over crypto investments. Several companies have expressed interest in unveiling alternative crypto investments such as futures ETFs, but the SEC has turned down most applications. The SEC recently approved just one Bitcoin ETF despite receiving multiple applications. It also recently stopped an ICO after discovering it engaged in fraudulent transactions.
Economists and legislators have submitted different suggestions on how governments could regulate Bitcoin. However, Bitcoin regulation would require multi-national approaches and consensus since it is decentralized and traded internationally.