The upcoming Bitcoin (BTC) halving could potentially influence how it is regulated in the future, as authorities take a closer look at the digital currency during this period.
According to Natalia Latka, who holds the positions of policy director and regulatory affairs at Merkle Science, this is the case.
In simpler terms, Latkas explained to CryptoMoon that even though there aren’t immediate changes to regulations or regulators’ attitudes, the economic and market fluctuations triggered by bitcoin halving events can influence regulatory decisions, particularly concerning market stability and investor protection.
The SEC’s decision to approve the launch of Bitcoin spot ETFs in the US, which occurred in January, is significantly contributing to the surge in Bitcoin’s price and increasing the cryptocurrency’s visibility and appeal.
If Bitcoin experiences heightened popularity and extensive media attention, leading to greater volatility – which is a real possibility – regulators might be compelled to take a closer look and potentially impose regulations.
Latka went on to outline a further scenario that could lead to increased regulatory scrutiny.
“According to Latka, the Bitcoin halving may influence energy usage as well. Since miners receive fewer rewards, less productive miners might be eliminated from the industry. This could result in more mining operations being controlled by major players and a tendency for mining activities to cluster in specific regions.”
“Additionally, Latka mentions that the implementation of PoW could draw attention from regulators concerning its environmental effects, potentially resulting in new rules aimed at promoting sustainability.”
Further clarity is required in the United States
I. CryptoMoon held a conversation with attorney Andrew Balthazor from Holland & Knight to gain clarity on the existing US regulatory landscape.
According to Balthazor, U.S. law remains unclear on Bitcoin and cryptocurrency at large.
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“Balthazor expressed that while there’s some consensus regarding the definition of a security transaction in the US, Bitcoin and other cryptocurrencies like Ether remain unclear. No definitive ruling has been given on their status.”
Unfortunately, lower courts’ rulings on cryptocurrency don’t typically carry enough weight to apply uniformly throughout the country.
“We don’t tend to have a lot of court adjudications saying definitively this token is a security in all circumstances. So, we have some conflicting lower court decisions, which in the U.S. aren’t binding on other courts. So that’s the issue.”
In the absence of explicit instructions from the SEC or the courts, the United States is experiencing what’s called “rulemaking by enforcement,” which means the limits of acceptable conduct are determined through legal actions.
Latka remarked, “Without distinct, explicit regulations, businesses may face the challenging task of maneuvering through a complex web of rules, unsure if their activities adhere to present or future understandings of the law.”
Balthazar’s encounter underscores the significant effect on companies striving to act ethically:
“I have clients who are frustrated and uncertain about whether their projects might be treated as securities, paying attorneys to negotiate for years.”
Balthazor commented that this scenario applies mainly to larger companies with substantial financial resources. He expressed his hope for a more open and clear communication channel between corporations and the Securities and Exchange Commission (SEC).
“Balthazor suggested that it would be beneficial for there to be a more structured approach in which the SEC could communicate their concerns regarding the project, stating that based on these reasons, they believe the project may resemble a security.”
A moving target for U.K. businesses
In the UK, the Financial Conduct Authority (FCA) is responsible for overseeing crypto asset regulations. Some of their rules, like those regarding the approval of crypto investment products, have been warmly welcomed. However, other rules, such as imposing “frictions” on UK customers of centralized exchanges, have faced strong criticism.
Latka explained how the U.K.’s regulation philosophy and implementation create confusion.
“According to Latka, the U.K.’s strategy for overseeing crypto assets is to adapt current rules progressively. This strategy entails gradually enforcing these modified regulations and asking crypto industry players to frequently adapt to a changing regulatory environment.”
Corporations, under the FCA’s method, need to remain vigilant and constantly monitor compliance issues as they evolve and adapt.
Latka expressed concerns that the continuous adjustment may result in considerable expenses and reduced productivity for these companies, as well as a high level of legal ambiguity. The predicament lies in applying regulations created for conventional finance to the swiftly developing crypto market.
In March, CryptoUK – the British trade organization for cryptocurrency – was pleased that the Financial Conduct Authority (FCA) gave its blessing to crypto exchange-traded notes (ETNs). ETNs function like exchange-traded funds (ETFs), but they don’t cater to retail investors.
CryptoUK urged the Financial Conduct Authority (FCA) to change its stance and requested, “We will persistently argue for a review of the current restrictions, allowing retail investors proper access to suitable financial investments.”
Many commentators, including Latka, assert that the criticism levied against the regulatory framework in the U.K. holds significant merit.
Latka pointed out, “The increasing public curiosity about crypto possessions contrasts sharply with the current regulatory actions. This gap calls for immediate action.”
Europe takes a different approach
In Europe, with unique regulations for cryptocurrencies set by authorities, it’s less likely that a Bitcoin halving will significantly affect the market.
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In 2023, the European Union unveiled the Markets in Crypto-Assets Regulation (MiCA), offering a detailed regulatory structure that surpasses both the U.K.’s approach and provides a more fitting response to crypto assets than the United States has implemented thus far.
Despite this, Latka pointed out that more explanation is needed along with creating specific instructions, especially regarding how MiCA will align with current EU financial laws and rules.
In the EU, as Bitcoin approaches halving in just a few days, it still has the power to shape regulators’ perspectives.
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2024-04-18 14:49