The rollercoaster effect experienced by cryptocurrencies in recent times has been a wild ride. Legacy Bitcoin (BTC), for example, went from $1,000 to $20,000 in 2017 before plunging back down to around $10,000, where it stands now. The fluctuations across the cryptocurrency prices spectrum have continued to stoke the unpredictable fire, but have also helped to increase awareness. Regulations have also helped to keep the market susceptible to highs and lows, although 2018 will more than likely mark a positive turning point for cryptocurrency values.
After BTC began its meteoric rise in value, the market exploded virtually overnight. Seasoned investors, and even high school freshmen, wanted to get in the game. The success also brought attention to cryptocurrency by governments around the world, and attempts at regulation have helped maintain a certain amount of instability in the crypto market.
Regulations have a tendency to create issues when they’re meant to solve them. Take the Dodd-Frank Act of 2010, for example. Restrictions were placed on deposit-taking banks, resulting in many larger banks being forced to decrease their market-making activities. The reduction was limited to certain asset classes, but was necessary for the banks to reach the capital rations that the regulations demanded. The bond market can suffer particularly harmful side effects from Dodd-Frank, since it is a market that isn’t as liquid as stock markets. The impact is an amplification of price movements downward or upward, instead of a reduction of volatility.
Cryptocurrencies got their start in a world with no regulatory oversight over how they would function. As its popularity grew, regulators still maintained a hands-off approach, allowing prices to continue to climb. It wasn’t until 2017 that some regulatory entities began to take the coins more seriously. After nine years of freedom; however, caging the beast isn’t an easy task.
Last year, China banned cryptocurrency exchanges, resulting in an increase in value of 96% and a rally in cryptocurrency circulation of $98 billion. Crypto enthusiasts then became concerned when it looked like South Korea could ban the coins, and prices began their most recent plummet. Now that South Korea has clarified its position and isn’t interested in a ban but, rather, regulation, cryptocurrencies have begun to climb again.
Regulatory uncertainty causes a lot of harm to the markets. Investors become unsure of issues like taxes or crypto legitimacy at the government level, leading to a loss in confidence and a more bearish market. When regulators open up and provide a firm stance on the subject, confidence is boosted and cryptocurrencies begin to perform well. While regulation to some means control, having clearly defined statuses and some oversight might actually help the cryptocurrency markets flourish.
New to Bitcoin? Check out CoinGeek’s Bitcoin for Beginners section, the ultimate resource guide to learn more about Bitcoin—as originally envisioned by Satoshi Nakamoto—and blockchain.