It would be difficult to say that things are going well in the cryptocurrency markets. All the major currencies have taken a hit amid rumors that the governments are planning tougher regulations on the crypto exchanges.
The SEC in the U.S. issued a statement a couple of days ago, warning consumers to be careful about trusting the changes in the virtual exchanges that are not protected by the federal law. Some analysts believe that the regulators seem to be gearing up for a crackdown.
Stories have been circulating the cryptocurrency boards and the social media that SEC is planning for virtual currency platforms to be regulated in the same way as the financial stock market.
Meanwhile, New York issued a ruling that cryptocurrencies can be regulated by the CFT as a commodity. This gives CFTC jurisdiction over cryptocurrencies in any form, whether cash or derivates. Market watchers believe that Ripple was the worst affected by this news as the price fell to a low of $0.76.
Major Currencies on Shaky Grounds
Bitcoin price dropped below the $9,000 level for the first time since February 14th on Friday before recovering to a level above $9,000 later the same day. Cryptocurrency prices are highly volatile and get an immediate reaction in the market due to good or bad news. Lately, the news has been anything but good.
Strong Bitcoin Fundamentals
It is not that the blockchain system itself is flawed. The technological fundamentals are strong. It is a fast, secure, accurate and transparent network. Exchange of value is quick and peer-to-peer authentication ensures that the ledger is always maintained correctly.
Bitcoin ecosystem can work perfectly as long as people use it for its intended purpose as a medium of transferring value. Upgrades such as SegWit can also be applied to reduce costs and resolve issues as and when they arise.
Why Governments Have a Problem with Cryptocurrencies
The problem starts with the question of control. Bitcoin at its core is a decentralized record of transactions. The value cannot be set at a certain level by a controlling authority; the way that governments and central banks manipulate and control the value of fiat currencies through monetary policy.
The second problem is anonymity of account holding. Bitcoins are issued into wallets that are maintained at an IP address rather than in the name of an individual. Governments can find out how much money an individual has by getting a record of all of their bank accounts. They cannot do the same with cryptocurrencies.
Some believe that Bitcoin and other cryptocurrencies are designed in ways that will make it almost impossible to regulate them. This is a big problem for governments for one main reason: calculation of taxes.
If people shift their holdings on to an anonymous ledger of records, how would the government know how much wealth is held by an individual? If the government cannot find out the income and wealth of an individual, they will not be able to calculate how much tax is due on them.
It does not seem like the problem will be resolved through confrontation. Major economies like Japan and the U.S. are supportive of cryptocurrenices. They have stressed multiple times that they are not looking to break the cryptocurrencies. They intend to bring more transparency to the exchanges and eliminate fraud.
We should be hopeful that things will be resolved in a manner that will be good for all stakeholders, without doing too much damage to the cryptocurrencies.