The Challenges of Regulating Crypto Assets

Every day we hear more of the name of crypto assets, and we will continue to hear it for a long time. Virtual assets, which are still new and in their infancy, continue their rapid development. The value of crypto assets, especially Bitcoin, is increasing, and this increase attracts people’s attention to this area.


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The rapid development of the crypto sector, which is the most trend in financial technologies, also creates some regulators’ difficulties. Not yet fully understanding the nature and risks of the ecosystem makes it difficult to make regulations in this area. People from different jurisdictions started working together to understand the nature of crypto assets and address issues fully. The increase in crypto assets’ value and how much longer they will continue to increase is another matter. Authorities think that this increase can be controlled with the right approaches. According to the Financial Stability Board (FSB), an analysis of the crypto economy is needed to manage this rising trend and make appropriate regulations.

In July, the UK’s Financial Conduct Authority (FCA) completed its work on categorizing crypto assets. Regulators in European jurisdictions continue to work with a similar approach. Some European jurisdictions have started investing in FinTech companies and adopted a “FinTech friendly” approach in their countries.


Regulatory Challenges

Regulatory regimes have many advantages and disadvantages in the crypto assets industry, as in every industry. Regulators must create opportunities for the industry to grow while trying to protect investors and consumers. Finding a balance between the two has many challenges.



One of the biggest challenges for regulators is to classify existing cryptocurrencies correctly. Crypto assets have emerged as a direct result of recent digital technological advances, and their purpose is to provide new possibilities for barter, investment, and financial transactions. The source of the problem when arranging crypto-assets is the hybrid and transformative inherent in cryptos. This, market developments, and the rapid pace of innovation make regulators’ approaches difficult and make room for some gaps.

It is difficult for a comprehensive classification to emerge in the market. The approach used when considering these issues is to compare crypto assets with traditional currency. The European Parliament has done research on this issue and, as a result, has revealed that crypto assets are not yet accepted as a general payment instrument.

Many analysts think cryptocurrencies represent an entirely new asset class. This classification may be correct for tokens that function like securities. Generally, crypto assets are defined as an investment as having other benefits apart from or in addition to their value.



Another issue is the undermining of innovation as a result of the over-regulation of crypto assets. That is to prevent a growing sector. The rapid rise in the value of assets like Bitcoin has radically democratized the fundraising abilities of beginners. This demonstrates the need for a specially designed set of regulations to allow cash-strapped small companies to raise funds from a wide variety of funders.


Blockchain Revolution 

Besides crypto assets, there is another issue that regulators should keep a close eye on, Blockchain. The truth is that blockchain technology that supports cryptocurrencies is revolutionizing many parts of the banking and finance industries. In short, Blockchain is a distributed ledger that provides guaranteed replication of a similar copy of encrypted ledger data. In many parts of the world, distributed ledgers are used for companies to facilitate public functions such as identity management, healthcare services.

One of the countries that use Blockchain most effectively, which is widely used or tried to be used in many parts of the world, is Estonia. With the digital infrastructure of Estonia, the country is built on an open-source backbone. With Estonia’s exception, the World Bank and the Australian Commonwealth Bank issued public bonds solely through blockchain technology.


What’s next for the Crypto Assets?

Despite intervention from governments and regulators, cryptocurrencies continue to rise. This uncontrolled rise poses a problem for some institutions. Uncertainty in regulators limits the types of investors who seek cryptocurrencies. More creative solutions are needed to regulate the market. These solutions require playing good cop and developing effective regulations through coordination between government and industry to reduce fake cryptos. However, to protect investors against fraud, appropriate security system provision solutions continue to be offered.

Looking forward, we can say that we will often hear the names of crypto assets. As the assets’ values continue to rise, the investors and entrepreneurs who pursue them will continue their existence. Regulators have a very critical task here. This task is to ensure security and reduce uncertainty without disrupting the market system.


January 2021, published on Sanctions Scanner

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