A few years ago, cryptocurrencies were not taken seriously. These nebulous tokens existed in the ether and carried no real value. They were not tied to any recognised currency or commodity, nor were the transactions recorded on a receipt or document; instead, they appeared on the 'blockchain' (whatever that means). Then, however, many people began to put money into them with the meteoric rise of Bitcoin – in both value and prominence – becoming emblematic of cryptocurrencies' potential and paving the way for more coins with enormous market caps.
Around this time, many financial institutions decided cryptocurrencies were a huge opportunity rather than a 'waste of time' and diverted funds towards the industry, now worth roughly $2 trillion. As of August 2021, according to Blockdata, 55% of the top 100 global banks are invested in cryptocurrency, including big names such as JP Morgan, Goldman Sachs and Citibank. Leading the way is Standard Chartered, with $380 million in 6 investments.
The bottom line is that cryptocurrency is now a huge deal, and the implications of precious, decentralised currencies for the global economy are multitudinous. That being said, there is the niggling issue of regulation that many authorities are struggling to implement, given that current legislation doesn't provide a framework for dealing with cryptocurrencies. Unfortunately, this has led to seriously unfair practices, including blatant market manipulation by those with influence.
For example, Elon Musk tweeting the word "dogecoin" amongst other things back in July made the already volatile 'altcoin' skyrocket on an unsustainable trajectory. This was mainly thanks to the efforts of inexperienced young investors and Musk's fans, two groups that you won't be surprised to learn are not mutually exclusive. But, as with most things that go up, there was later a marked fall in the value of Dogecoin, meaning that many of these investors at Musk's beck and call found themselves out of pocket.
Another demonstration of the urgent need for regulation is the increasing popularity of 'pump and dump schemes. This term describes a situation where an influencer or content creator uses their reach for advertising a particular cryptocurrency and driving up the price for personal gain. They then sell at a higher price and earn a lot of money at the expense of impressionable young fans. If this sounds extremely simple, that's because it is. This form of exploitation is so easy and profitable because of the lack of regulation surrounding the market regarding the creation and transaction of coins.
Any GCSE business student will tell you that regulation can hinder the profitability of a given market whilst ensuring that disasters don't occur. Following the financial crisis, the regulations introduced effectively meant that less money could be made and less money could be lost (if you'll forgive my lack of economic literacy). Anybody can see that this is a no brainer, especially given the nature of the investors. Not to make generalisations, but the accessibility of crypto markets combined with the potential to 'get rich quick' has attracted a reasonably young, impressionable and inexperienced audience. Many of these investors will be easily misguided with minimal funds, and crypto markets provide opportunities for them to be exploited.
There is not yet a regulatory framework in the US, and in fact, the Treasury is at odds with the SEC regarding the classification of cryptocurrencies. Meanwhile, China banned transactions using cryptocurrencies altogether. The UK has a somewhat limited approach to regulation in that cryptocurrencies are considered property instead of legal tender, yet laws specific to cryptocurrency are not in place. It's essential to allow governments to deal with this relatively new form of buying and selling. Still, it's time to start building specific legal frameworks to make the market as far as possible. After all, it's here to stay.
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