Regulation is the answer to crypto currency trading phobia

03/19/2021

Questions remain about volatility and speculation, illicit uses, energy consumption and demand of cryptocurrencies.

Although interest is clearly growing for investments in cryptocurrencies, but questions remain about customer protection, both privacy and security; about compliance with tax law; the volatility of the cryptocurrencies themselves; and their energy consumption footprints, according to S&P Global Ratings. Its report notes that Bitcoin and other cryptocurrencies consume as much electricity as the Netherlands and the United Arab Emirates, according to the Cambridge Bitcoin Electricity Consumption Index.

Robust yet reasonable Regulation and greater public confidence are key to the broad acceptance of Bitcoin and other cryptocurrencies, as per a new report from S&P Global Ratings. The report states that there exists a “wave of excitement about cryptocurrencies in general and Bitcoin in particular, which have become more acceptable as investments or as a means of payment,” but also the limits imposed on their broad-based use due to the lack of new regulations and the excessive price volatility.

Until there is more credible regulation inspiring significant public confidence, S&P Global Ratings analysts expect cryptocurrencies will “continue to be speculative instruments, which investors mostly use as a store of value rather than a means for commerce.”

The European Securities and Markets Authority (ESMA), the EU securities markets regulator, too published its first Trends, Risks and Vulnerabilities (TRV) Report of 2021.

Crypto-assets: ESAs nudges consumers over risks

As crypto-assets, including popular currencies such as Bitcoin, continue to attract public attention, the European Supervisory Authorities (EBA, EIOPA and ESMA – together the ‘ESAs’) emphasized the continued relevance of their previous warnings. The ESAs reminded consumers that some crypto-assets are highly risky and speculative and, as stated in the ESAs’ February 2018 joint warning, consumers must be alert to the high risks of buying and/or holding these instruments, including the possibility of losing all their money.

Additionally, crypto-assets come in many forms but the majority of them remain unregulated in the EU. This means that consumers buying and/or holding these instruments do not benefit from the guarantees and safeguards associated with regulated financial services.

In September 2020, the European Commission presented a legislative proposal for a regulation on markets in crypto-assets. That proposal remains subject to the outcome of the co-legislative process and so consumers do not currently benefit from any of the safeguards foreseen in that proposal because it is not yet EU law.

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