Cryptocurrency Regulation in 2018: More Regulations, Prices Fall

The cryptomarket has been marred by significant volatility through the first quarter of this year, as investors respond to governments and central banks looking to take back control over an asset class that had been created as an alternative to fiat money, with an ethos of decentralization.

While last year, the Chinese government looked to being managing the cryptomarket, by banning crypto exchanges and Bitcoin mining, the South Korean government’s moves earlier this year gave investors an idea of how the cryptomarket would respond to a material shift in the regulatory landscape.

Much of the late 2017 rally across the major cryptocurrencies was attributed to a material increase in demand for cryptocurrencies in South Korea. Talks of shutting down exchanges, saw Bitcoin tumble to sub-$6,000 levels before the South Korean government took a U-Turn and changed some of the regulations, banning anonymous trading and forcing the introduction of KYC and Money Laundering policies upon cryptocurrency exchanges.

In recent weeks, the SEC and Congress have also taken a greater interest in cryptocurrencies and the initial coin offering market.

Some quite harsh words from members of the Financial Services sub-Committee, including the Chairman, who stated that the cryptomarket would see significantly more oversight than was currently in place, weighed heavily on the markets, though this time around Bitcoin managed to avoid tumbling to sub-$6,000 levels.

The impact of the Financial Services sub-Committee review of the market was evident however and the cryptocurrencies have failed to rebound, as uncertainty over what lies ahead now continues to pin back the cryptos from enjoying the rallies of old.

Concerns over this week’s G20 Summit was the next fear factor for the markets and, despite Google and Twitter’s announcements of banning the advertising of anything crypto, from wallets to ICOs to the cryptocurrencies themselves, the market enjoyed a strong rebound.

The bounce back came in response to comments from BoE Governor Carney on the eve of the G20 that the cryptomarket doesn’t pose a risk to financial stability or to the global economy.

While the market reaction was an optimistic one, concerns over the use of cryptocurrencies by criminals, terrorists and even sanctioned countries suggest that, while Carney’s words may ring true from a contagion risk perspective, a shift in the regulatory landscape remains inevitable.

Cryptomarket rebounds during the silent periods, driven by speculative investors, have proven to be short-lived and have tightened as the reality remains that regulations are coming.

Few if any can foresee what kinds of regulations will be imposed, but at a minimum, one would expect a wider ban on anonymous trading, with exchanges being forced to carry out KYC and Anti-money laundering checks. This obviously works well in jurisdictions where regulators have control, but, when considering the fact that cryptocurrencies are virtual and that exchanges can pop up in almost any geography where a government is willing to keep the doors ajar, a global policy looks to be out of reach over the short to medium-term.

Complacency ahead of key government reviews have left investors with deep losses and the trend is unlikely to change anytime soon, with few if any governments and regulators, in key jurisdictions likely to deliver support to the current regulatory environment.

So, the more regulatory chatter we hear, the greater the impact on the cryptomarkets, until there is some clarity on exactly what kind of regulations are likely to be imposed.


This article was written by Bob Mason, FXEmpire Analyst
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