Regulation Will Send Cryptocurrencies Even Higher

Cryptocurrencies took a hit this week when the SEC announced that bitcoin and many other cryptos meet the government’s definitions of securities and are therefore subject to regulation. Cryptocurrency exchanges will be required to register with the SEC.

Most people automatically assume this is terrible news for cryptocurrencies. But I don’t. I actually think it’s good for cryptos.


Because it should clear up a lot of the fraud and shady dealings in the crypto space. There’s a lot of concern about the integrity of crypto exchanges, that the crypto markets facilitate crime, terrorism and tax evasion, among other things.

Sensible regulation could take a lot of the “Wild West” element out of it. Average investors will have much more confidence that they’re dealing with a legitimate investment, not a fly-by-night con job or something only criminals and terrorists use. A lot of people who wouldn’t go near cryptos before will then enter the market because they’ll be considered legitimate.

I’m not alone in that view.

For example, Aviya Arika is a specialist in cryptocurrencies and the head of blockchain innovation at Porat & Co. Law Firm. He says the lack of meaningful regulation has hurt the crypto market:

Contrary to what your instinct may tell you, regulation actually makes cryptocurrencies prices flourish. Regulatory uncertainty… has proved to be harmful to the crypto markets… Generally speaking, I think that as more jurisdictions regulate and clarify legal statuses of cryptocurrencies, crypto markets will become substantially more stable and widely adopted.

Commodity Futures Trading Commissioner Brian Quintenz also agrees healthy regulation in the crypto market is good.

“Regulation can add to credibility,” Quintenz told CNBC Wednesday. “And I think the participants in this market want a credible marketplace… I would agree with the SEC that some type of federal oversight is a good idea.”

Or take the CEO of crypto player Ripple, Brad Garlinghouse, who is also behind cryptocurrency regulation:

I think it’s important for the entire industry to know that we have to work with regulators. It’s good to understand that blockchain revolution can only happen within the regulations — it cannot happen outside the system. There are many people who are against the idea of regulation, but it will serve to be good in the long run.

Even Republican politicians, who normally oppose government regulation of markets, are coming out in favor of it.

For example, Republican Sen. Mike Rounds of South Dakota — who sits on the Senate Banking Committee — supports crypto regulation. He’s joined by Republican congressmen Dave Brat of Virginia, Tom MacArthur of New Jersey and Bill Huizenga of Michigan.

I believe the calls for regulation will gather momentum.

Now, what form any regulations would take still has to be worked out. Cryptocurrencies aren’t traditional securities like stocks. The devil is in the details. But a basic framework could eliminate many of the concerns people currently have.

We can expect continued volatility in the crypto space as this all shakes out, but the crypto market will be more stable in the long run.

Fortunes will still be made in cryptocurrencies, just like fortunes are made in the stock market — even though it’s heavily regulated.

I still believe cryptos are the boom of a lifetime, and a sensible, healthy set of regulations doesn’t change my view at all.


Andrew Keene
for The Daily Reckoning

The Daily Reckoning