In what felt like a slap in the face to many last month, the Chairman of the Federal Reserve, Jerome Powell, dismissed the burgeoning $295 billion cryptocurrency market with one brief statement. After claiming that digital currencies weren’t ‘big enough’ to pose a threat or even make his short-list of concerns, Powell then declined to comment further on his statement except for labeling crypto investors as being ‘unsophisticated’.
For a market which has a growth projection of over $1 trillion by the end of this year, the closed-mindedness of an archaic institution such as the Federal Reserve shows a deep lack of foresight. Or understanding.
According to Constantine Ivanov, CTO at TradingView, the Federal Reserve has gotten it wrong. Not only will regulation help weed out criminal activity, but it will also protect investors and allow cryptocurrency to enter the mainstream.
Here are three key reasons Powell needs to eat his words:
3. Cryptocurrencies Are Here to Stay
While it’s true that many cryptocurrencies may come and go, the wider evidence suggests that these digital assets are here to stay. With major stock exchanges and traditional investors getting on board, the stance from the Federal Reserve seems short-sighted at best.
Ivanov says, “Even though cryptocurrency is touted as being unstable, it’s unlikely to go away in any foreseeable future. Regulatory bodies need to set parameters long before they are put into action. The Federal Reserve might as well put a plan into action now because cryptocurrencies will be around.”
2. Cryptocurrencies Should Be Regulated
At the same time as labeling the cryptocurrency market as being ‘insignificant’, Powell also said that the U.S central bank would not be regulating cryptocurrencies– neither would the Fed be looking to provide insight or guidelines into the management of such assets.
“Some hesitancy to regulate stems from cryptocurrencies’ reputation for being used in illegal activities, like drug dealing, money laundering, and tax evasion due to the anonymity it offers,” says Ivanov. “However, with stronger regulations, the anonymity offered will decrease, making it less favorable for criminal activity.”
The right regulation should have the potential to decrease crime, making cryptocurrencies safer and more appealing–even to “sophisticated” investors.
Says Ivanov, “Once cryptocurrencies are regulated, more businesses will recognize it as a valid currency and it can be used in everyday culture more freely. As businesses integrate this technology, payments and transactions will become easier for consumers.”
1. The Public Shouldn’t Be Kept in the Dark
While entities such as the SEC are trying different methods to educate investors, there’s still a long way to go before people are properly informed about the different misconceptions regarding alt-coins.
“As cryptocurrencies become more widely accepted in mainstream markets,” Ivanov continues, “regulatory bodies will have more oversight to better prevent investors from scams and provide more educational resources. As of right now, platforms like TradingView are the only educational outlets for someone who is looking to start investing in a cryptocurrency.”
Regulating cryptocurrencies will open the door for more institutions to get involved, which in turn will make it easier for them to invest. In short, according to Ivanov, regulation is necessary for cryptocurrency to flourish and once it does, it has the potential to become a force to be reckoned with.