Governments around the world are moving, slowly, towards a more certain regulatory environment for cryptocurrencies. With the global cryptocurrency industry being worth more than $2 trillion, and an ever-increasing number of connections and influence from crypto on the broader financial markets, and vice versa, it seems only logical that regulation of this industry is inevitable. In the United States, the coming legislation that is intended to solidify and make certain the regulatory reality of cryptocurrency is known as the CLARITY Act.
This act intends to make it much clearer how different cryptocurrencies will be treated by government organizations, and which federal bodies are responsible for them. While this regulation might not make a difference to individual traders and investors who track the XLM price USD and other currency pairs on crypto trading platforms, it should provide more stability for businesses in the US who intend to build products with cryptocurrencies.
Let’s look at how cryptocurrency regulations are progressing in the US and elsewhere, and at why greater regulatory certainty matters for the cryptocurrency industry.
The CLARITY Act Promises Regulatory Certainty In The US
The CLARITY Act, as we mentioned earlier, is the proposed legislation that would introduce cryptocurrency regulatory certainty in the US. At present, there is no official federal stance on how cryptocurrency assets should be treated, which has led to much confusion and even a few legal disputes between federal bodies and private companies. The situation is so bad that it is unclear which federal body should be responsible for different kinds of cryptocurrencies.
The CLARITY Act intends to do as its name suggests, and provide greater clarity for this industry. The responsibilities of federal bodies will be made clear, and businesses, companies and investors will be able to clearly know what is expected of them in different situations regarding digital assets.
CLARITY In Limbo, For Now
Unfortunately for stakeholders of the cryptocurrency industry in the US, the window of opportunity for passing the CLARITY Act is rapidly narrowing. The bill is currently sitting before the Senate, and as the August 7 congressional recess is less than a month away and there are many other important issues to be discussed and dealt with, it might simply have to wait. The President has weighed in, pushing lawmakers to pass the bill, but whether his urgings will have an effect remains to be seen.
Regardless of whether the bill is passed this year or not, there is an inevitability to its eventual success that is hard to ignore. The momentum around cryptocurrency investment and engagement in the US, and across the world, continues to build. As other regions, such as Europe, pass their own cryptocurrency legislation and regulate, it falls to the US to catch up or be left behind, which is a position that the US has, historically, not allowed itself to languish in for long.
Cryptocurrency Regulation In The European Union
Cryptocurrency regulation in the European Union has existed in a strong and unified form for more than 3 years now, with the Markets in Crypto-Assets (MiCA) regulation being passed on April 20, 2023. MiCA provides a stable and extensive framework for how cryptocurrencies and digital assets should be treated and includes things like licensing and consumer protections.
One practical benefit of MiCA is that an authorised crypto-asset service provider can operate across EU member states under a harmonised regulatory framework. This reduces the need to navigate entirely separate national regimes while still requiring providers to meet common standards covering authorisation, disclosure, governance and consumer protection. The result is a clearer route for compliant businesses seeking to offer services across multiple European markets.
This regulatory certainty has allowed the European Economic Area (EEA) to become one of the friendliest regions for companies interested in designing and creating cryptocurrency products, or for institutional finance groups who want to invest in the crypto market.
Why Regulatory Certainty Is Important
Regulatory certainty is important for a number of reasons, largely depending on what sort of interaction with cryptocurrency is occurring. Businesses that are building products designed with cryptocurrency cannot act with confidence if they don’t know how their products will be treated by government bodies. Investors, likewise, might hesitate or fear that their investments could be undermined by changing regulations. Furthermore, the operations of exchanges that provide liquidity and broader access to the crypto market are heavily dependent on these regulatory procedures.
When regulations for cryptocurrencies are clearer, benefits such as the following should occur:
- Institutional participation will increase.
- Investors will be more confident.
- Consumer protections will be stronger.
- Compliance will be simpler and easier.
- Innovation is more likely to occur as businesses are clearer on what chances they can take.
The goal for most governments is not to gain greater control over cryptocurrency markets, but to ensure that the companies, investors and businesses that are engaging with it are able to do so with confidence.
