Why Crypto Needs Regulation

WHY CRYPTO NEEDS REGULATION
By: www.ProfitableInvestingTips.com

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The point of developing Bitcoin, the first
cryptocurrency, was that it would be a way to
buy and sell over the internet and a way to carry
out financial transactions person to person
without relying on or paying a third party or
middleman. Since the original focus of
cryptocurrencies was to avoid interference by
third parties, including governments, the idea of
regulation of crypto was anathema for years.

That is, it was until crypto winter, a string of
crypto-related bankruptcies, and recurring
cases of fraud caused investors to lose obscene
amounts of money.This is basically why crypto
needs regulation.

Trust in Crypto Evaporates

There was always some distrust of
cryptocurrencies when prices started to rise and
tokens like Bitcoin became very volatile. Folks
who invest in stocks, bonds, or real estate look
for what they call intrinsic value in their
investments. Intrinsic value is what an asset is
worth based upon forward looking cash flow.

Because Bitcoin tokens do not generate cash flow, the
innate value of Bitcoin was based on the limit to
how many tokens will ever be produced (minted)
and trust of the public that Bitcoin (and other
tokens) would be a long term store of value, a hedge
against inflation, and a safe haven when other
financial assets plummeted.The first loss of trust in
crypto was simply because so many people lost
money as Bitcoin fell by as much as three-fourths of
its November 2021 value.

Fraud Emerges As a Risk in Crypto Businesses

Aside from market risk, the only problems in
owning crypto tokens or doing business with a
decentralized finance entity was that you or
they could be hacked or that you would not keep
track of the keys (codes) that allow you to have
access to your crypto tokens.When crypto
winter set in it first appeared that that only issue
was another valley in the sequence of peaks and
valleys in crypto markets.

Then, one after another, crypto exchanges and
DeFi businesses went under. After the fact in
most cases it became clear that crypto
businesses had been playing fast and loose with
customer funds in order to keep afloat. Further
down the line it has become clear that
companies like FTX were violating laws and
engaging in fraud before there was even a hint
of crypto winter.

Crypto Moguls As the New Robber Barons

Back in the late 19th century there were owners of
US businesses that were on one hand called
“captains of industry” and on the other hand
“robber barons.”These robber barons used
unethical business practices to monopolize
entire industries before “trust busting” at the
beginning of the early 20th century made many
of their practices illegal.

What has come to light in the aftermath of
business collapses like that of FTX was how
similar the actions of “moguls” in the crypto
realm were to those of the robber barons of an
earlier age. Monopolies like Standard Oil were
broken up and laws and regulations put in place
to help ensure fair business practices and fair
treatment of customers of such businesses.

While many of the now-disgraced crypto captains
of industry talked a good story about following
the crypto ideal of fair person to person business
practices, they were, in fact, acting like robber
barons in their business practices and, in fact,
dipping into customer funds for their own
personal use.

Why Regulate Crypto?

When a regular financial business like a bank holds
someone’s money on deposit it is insured by the
Federal Deposit Insurance Corporation (FDIC) up
to $250,000 per account. In return, banks need
to comply with various rules to make sure that
they have sufficient assets to cover any
withdrawals.

Banks do not usually have all of the necessary cash
on hand because they rarely need it.The money
is put to work in loans, mortgages, and other
investments to make money in order to pay
interest on deposits, cover expenses, and create
a profit for bank owners or stockholders. It is
trust in the bank and trust in the banking system
that keeps depositors from all taking out their
money at the same time.

The point of bringing regulation to bear on crypto
businesses is to ensure the safety of people’s
investments in or deposits with these businesses
and to engender the necessary trust that leads
to a stable business sector. Rather than hurting
DeFi and the rest, proper regulation will likely
make the crypto sector more trustworthy and
successful.

For more insights and useful information about
investments and investing, visit
www.ProfitableInvestingTips.com.

Why Crypto Needs Regulation

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