Tighter Crypto Regulations: They could spell a death kneel to many crypto exchanges

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by derailedcapitalism
Thursday, Nov 25, 2021 - 13:29

Dire Predictions 

An exhaustive review, on the impact of regulatory and non-regulatory announcements related to the crypto industry, conducted by the Bank for International Settlements (BIS), left no doubt that such declarations do have a direct impact on the underlying crypto currency that the moves target. An analysis of two such historic events demonstrated the deleterious impact of proposed regulatory changes on the value of crypto currencies. And, anything that’s bad for the crypto currency, is also bad for the exchanges on which it trades. 

A case in point is the impact that proposals for listing a Bitcoin ETF, and regulations governing AML and CFT had on the underlying currencies – which directly impact the profitability of their exchanges.

Clearly, when governments decide to make regulatory announcements, it has a real impact on the pocketbooks and long-term wealth creation of ordinary crypto investors. Proponents of crypto regulations may brush this assessment as a “short-term blip” for the exchange. But the fact is that such regulatory-driven “blips” can mean thousands of dollars in lost profits for exchange clients who actively trade cryptocurrencies. And, when clients lose money, the exchanges’ profitability suffers too!

Traders on crypto exchanges, that are overburdened and shackled by regulations, also suffer huge losses. They would likely have been better off using an exchange not constrained by such regulatory high-handedness. That same BIS study found that within a span of hours, unfavorable events, such as seemingly overregulation, can have a greater negative impact on crypto prices, than the positive impact of favorable regulatory or non regulatory moves.

More Than Just One-off Events 

And lest you think the above is an isolated example – think again! In their zeal to catch the “bad guys”, many regulators forget that regulations should target the exceptions, and not penalize the broader crypto exchange user. However, that doesn’t seem to be the approach favored by most regulators of the crypto space.  

On December 19th, 2020, the U.S. Treasure Department unveiled a slew of stifling regulations targeting crypto wallet holders. As we know, there are some “bad apples'' who use these wallets for unintended purposes. However, the vast majority of crypto wallet holders are hard working traders and investors, who want to conduct safe, legal, real-world transactions with their wallets. However, how were they rewarded with these regulatory announcements?

Within the trading window for that day, the value of Bitcoin (BTC) dropped more than 2.5%. To put that in perspective, someone unaware of the underlying reason for that volatility, and using their wallet to make a $1,000 purchase, would be out of pocket – no thanks to regulatory news! – by an additional $25! 

A trader exchanging larger amounts of BTC on their exchange – say, $10,000 – would have been hit even harder, by $250. And given that hundreds of thousands of dollars’ worth of Crypto transactions occur by the hour, on most exchanges, it’s easy to understand the massive scale of wealth erosion precipitated by ill-intended regulation of the space. 

Into Privacy Invasion Territory? 

If readers recall, one of the key features of Crypto exchanges was that it freed users of digital coins, tokens, and currencies, from the invasive privacy standards enforced by most traditional financial institutions. Does a yearning for privacy always translate to “nefarious intent”? Hardly! Most Crypto exchanges are self-regulated, taking elaborate care to protect the exchange - and its users – from “bad actors”. In doing so, they also balanced individual users’ need for privacy.

That’s about to change – no thanks to a government-sponsored regulatory overreach!

This infraction of privacy isn’t just an overreach, but it’s also a death kneel for many traditional self-regulated crypto exchanges. It means crypto exchange users can no longer rely on the anonymity of their platforms; but it also places new obligations on the already over regulated virtual asset service provider (VASP) platforms. The equation is simple: 

More regulatory burden = Higher operating costs = Greater user fees = More users abandoning these platforms = More exchanges going out of business!

This equation also translates to monetary losses, both for users and exchanges. As long as the regulatory pressures continue building, there’s a higher risk of crypto exchanges going out of business. And, the fewer exchanges there are, the less competition it’ll breed. And that could spur additional regulation to this very promising industry – that of anti-competitive and monopolistic practices. 

Viable Alternative Exchange Solutions 

Given this uncertainty, and the risks they bring to crypto trading, many clients are now actively looking for an alternate crypto exchange – one that has no KYC restrictions or limits on trading and asset exchanges. Cryptex is one such KYC-free crypto trading exchange, where clients not only free themselves from the regulatory risks associated with KYC-bound exchanges, but they also have access to a suite of unique real-world transactions. 

Not only can users of the service exchange their digital assets with electronic currencies that they can use in real-world transactions, they also have access to “nontraditional” commerce too, such as using the exchange to buy real estate with cryptocurrencies. And Decentralized Finance (DeFi) project sponsors can now quickly create BEP-20 or ERC-20 tokens, as well as RFI tokens, with built-in audit reports by HashEx and Paladin, and leverage a number of additional functions to assist developers and owners of crypto projects in launching new projects. 

The Bottom Line: With additional regulation stifling the growth of crypto wealth, for individuals and enterprises, it’s time for users to consider viable alternative crypto exchange solutions.

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