• Mon. Feb 26th, 2024

The Challenges of Regulating the Cryptocurrency Market


Financial systems of different countries and global ones have faced the appearance of cryptocurrencies (like Bitcoin). Now, financial companies, regulators, and investors need to understand what they are all about and whether there should be certain laws to regulate them.

Since buying, selling, and other types of cryptocurrency transactions have become popular within a short time, authorities all over the world should understand the nature and regulation needs for cryptocurrencies to secure their financial systems against fraud and scam. The related risks of using cryptocurrencies for financial operations are unknown either, and it makes the need for regulating cryptocurrency markets more vital.

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Let’s consider the main challenges regulators can face dealing with cryptocurrencies.


  1. Challenges of Classification
  2. Is Fraud Inevitable?
  3. Different Approaches
  4. Main Issues with Cryptocurrency Regulations
  5. Conclusion
  6. Challenges of Classification

Regulators face the challenge when they try to classify the multiple currencies which are in the market nowadays. Analysts, in turn, argue that cryptocurrencies are a completely new asset type that needs specific regulations. More and more new ICOs (Initial Coin Offerings) are offered these days as we can see from the ICOholder statistics. They consist of tokens which are tradable assets that serve as units standing for cryptocurrencies and representing other values. 

The question is whether they can be qualified as securities. If they can, they may become subject to securities laws and regulations. In case they are not securities, what are they then? The messages coming from certain regulatory agencies, such as the US S.E.C during the past years sound a bit confusing. 

The attempt of classification perfectly suits both tokens with the function of securities and utility tokens. The latter are those that have utility behind them alongside or apart from their investment value. These tokens do not refer to securities because, as experts explain, such tokens do not have characteristics of an enterprise which has been set up for receiving profits.

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Another issue with token classification is that they can perform various functions simultaneously – those of currencies, voting or betting tools, or even conventional securities. Moreover, different agencies regard cryptocurrencies in a different way. Some of them believe that cryptocurrencies are monetary equivalents while others argue that these are commodities (or digital goods). It’s strange enough but some regulatory offices tend to think that cryptocurrencies belong to taxable property.

The only thing to understand for providing a correct definition is that cryptocurrencies cannot correspond to any traditional definition related to an investment contract. Unless regulators understand that, there will be a continuous legal vacuum on this matter all around the world.

  1. Is Fraud Inevitable?

The fraudulent nature of many cryptocurrencies is one of the first issues a regulator can think about. As the S.E.C. Chairman Gary Gensler argues, the cryptocurrency market is like the Wild West. He also compares it to the ‘rife with fraud, scams, and abuse’. 

The S.E.C. is the US regulatory agency that deals with digital coins, virtual currencies, and tokens. Since most trading companies are landed on huge and decentralized electronic ledgers using blockchain technology, the regulation of such operations is a big challenge. 

Thousands of digital currencies and tokens have been introduced. New trading platforms and businesses appear almost every day. This creates a lot of chances for fraudsters, and this is the biggest concern of the S.E.C. and its Chair. The increased need for consistent and strict regulations in this market emerges. If there is no efficient regulatory body, attempts will be made to organize an uncontrolled and illegal market to produce, sell, buy, and exchange Bitcoin and other cryptocurrencies.

Therefore, the main issue for regulators is to develop understandable and straightforward rules to eliminate fraud, money laundering and, as a result, financial terrorism. Most governments as well are struggling nowadays to create overall guidelines for regulating cryptocurrencies. However, their positions and views of the problem diverge, so there is no unique regulatory system developed yet.

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3. Different Approaches

Therefore, Bitcoin and other cryptocurrencies operate in accordance with various laws in different regions due to the problem of their classification. These regions have made attempts to make out multiple approaches to control and operate Bitcoin which differ a lot. The overall management of cryptocurrencies is impossible so far due to this difference in approaches as well.

However, we can follow the three different types of regulating systems related to digital currencies which have recently come to being:

  1. The Chinese system, which is closed and performs with multiple restrictions.
  2. The Swiss system, which is open and liberal, perfectly fitting the Switzerland market.
  3. The American system, which is simultaneously open and strict, and it works best for the US market.

Since it is fully understandable nowadays that sooner or later the world will switch from raw cash to digital currencies, it would be better to find and adopt the unitized approach and accurately follow it to protect customers in different parts of the world.

The British Financial Conduct Authority has developed its unique regulatory sandbox approach that can be accepted as a model for all regulators worldwide. 

  1. Main Issues with Cryptocurrency Regulations

According to everything highlighted before, we can assume that the main issues that prevent adoption of the unified global cryptocurrency regulations are the following:

  • complexity of functions;
  • ever-evolving character;
  • global nature vs. local diversities;
  • unpredictability; 
  • attempts to decentralize digital currencies;
  • different approaches to the definition;
  • fear of overregulation;
  • overcharging trading platforms and heavy tax policies.

There are many others, of course, which depend on the peculiarities of different national financial systems and governmental policies. 

Another variant of situation development can be avoiding regulations completely. However, it is counter-productive. Money laundering, scam, and fraud will become a common thing in the world of cryptocurrency trades. So, it is better to comply with the newest regulatory amendments, such as the 5th money-laundering directive to the European anti-money-laundering laws, than face severe losses in revenues because of dishonest practices in the market.

  1. Conclusion

If we try to predict what kind of cryptocurrency regulations the markets can face and what challenges they will experience, it makes sense to assume that a lot will depend on how cryptocurrencies will evolve. This evolution can produce proper regulations due to the consistent analysis of users and economies they are going to operate in.

Some gaps in regulations will appear in the future to minimize the risk of fraud. Everything should operate for better advantages for both cryptocurrency services and investors. The risks of fraudulent actions will diminish with the development of technologies. The latter, in their turn, will boost the cryptocurrency market development. Let’s wait and see what further advantages and challenges it will produce.

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Kevin Moore - E-Crypto News Editor

Kevin Moore - E-Crypto News Editor

Kevin Moore is the main author and editor for E-Crypto News.