What are the reasons governments regulate cryptocurrencies?

Many times have we heard governments press the issue of regulating cryptocurrencies in their countries, but very rarely do we have tangible reasons accompany those speeches. The emotional performances of politicians asking their colleagues to protect the country’s citizens from the danger that is cryptocurrencies are often baffling for crypto traders.

What danger? What protection? What are these people talking about?

There are questions that we usually ask ourselves when we hear a new country introduce a crypto regulation draft. Since politicians try to avoid answering direct questions as to why a regulatory framework is needed, let’s try and answer them ourselves.

Control?

One of the primary reasons that governments draft a crypto regulation is control over the local industries. For example, they don’t want everybody and their mother to integrate cryptos and leave them unaware of how most of the transactions in the country are conducted.

In fact, we have to give it to them here, there should be at least some kind of control to avoid money laundering cases and fraudulent activities, but not to a level that everybody has to report their dealings. Maybe a $10,000 should be declared but a $10 should not, especially when its in cryptocurrencies.

But the best examples of trying to gain control of their economy with regulation are Australia and Norway, both of which have a very and semi-restricted gaming industry. Norway wants to completely remove gaming from its region, while Australia is trying to maintain it on the offline level.

Let’s focus on Australia as they had much fewer reasons to introduce regulation.

The gaming market in Australia is laid out thusly. Every local gaming company is forced to offer their online platforms to foreigners only, they can’t offer it to locals. But locals were still able to utilize them thanks to anonymous crypto transactions on the growing number of Australian online casino websites. All of this jeopardized the gaming regulation, therefore something needed to be done.

Thus we see a crypto regulatory framework in the country. Every local crypto exchange is forced to deliver customer transaction history to the government, from which they can find local companies catering to Aussies as deal with them accordingly.

They implemented a law to enforce another law.

Taxes

Another reason is that the government simply wants to put taxes on crypto capital gain, which is understandable from a financial standpoint.

If cryptos are considered as a tradeable asset, then they should be taxed just like Forex, stocks or any other capital gain.

But it simply goes beyond sense. Wouldn’t it be much better to let the traders have all of the profits? Wouldn’t it increase the purchasing power of the local consumer? Those traders would simply spend the money on local services and goods, wouldn’t they?

Well, the good thing is that the tax is usually not too high, around 10% is the norm to see in most European and Asian countries if they do classify it as a tradeable asset. But those who view it as a hobbyist commodity, then taxing it would be illegal.

Safety

It is no secret that cryptos have been involved with numerous money laundering and fraudulent cases. Therefore the government needs to have at least some measures of preventing them from occurring in the future.

Some choose to ban it while others simply request a ledger where all the transactions are recorded. Australia, for example, requires all of its local crypto exchanges to deliver transaction histories of their customers on a monthly basis.

Should a specific transaction seem suspicious, the owner of the account would be called for an investigation.

Another issue is terrorism financing. Which is a matter of national security, therefore it is one of the most justifiable reasons for imposing a strict crypto regulation.

Overall, those are the three main reasons why a government would impose a crypto regulatory framework on their country. It’s about control, safety and taxes. All the other aspects are usually overlooked, besides countries such as Australia and Norway with their gaming industries.

In conclusion, the regulations are often quite beneficial for the consumer as they’re able to protect them from fraudulent companies as well. It’s just that politicians have a very inept way of conveying the message to the community that regulation is imperative for their safety.

Therefore, if you live in a country where regulation is yet to be implemented, keep in mind that these three should be the main arguments from the regulators.

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