The Future Of Trading: How Regulations Could Grow The Crypto Market

Stavros Lambouris, CEO at HYCM International, explores…

In recent years, cryptocurrencies have dominated the discourse surrounding the future of trading. With people growing increasingly distrustful of banks and centralised currencies, there is little wonder that decentralised asset classes in the digital space are rising to prominence.

However, there are some potential hazards in the crypto market that could deter the average investor from getting involved.

The ‘Wild West’ of the investment world?

Indeed, for newcomers to investing, the ‘wild west’ nature of the market can leave them particularly vulnerable to making significant losses.

One major danger for fledgling investors is the prominence of ‘pump and dump’ scams and other market manipulation tactics in the crypto arena, whereby groups of investors convene online on platforms like Reddit to artificially increase the value of an asset with a coordinated buying scheme. Thereafter, they can withdraw their assets, causing the price to crash. Usually, the leaders of such schemes benefit from the fallout of their actions, often at the expense of others.

Last year, $14 billion worth of crypto assets were stolen from investors – this is twice the amount stolen in 2020. It is obvious that cryptocurrency investments are becoming increasingly vulnerable to criminal activity – at least in part, this is due to the anonymity of the blockchain. If a criminal is in possession of an individual’s private key, they could be able to access and steal assets without trace.

With this in mind, investors could consider investing in crypto CFDs to reduce this risk, because they allow investors to trade in the crypto markets but without the risk of being hacked. Also, choosing a reliable trading platform, such as HYCM, is now more important than ever when considering investments in crypto.

These dangers, in addition to crypto’s propensity for major price fluctuations, mean that less experienced investors might be ill-equipped to navigate the burgeoning crypto market. Consequently, may in the industry area calling for greater regulations to be brought into place to protect these investors.


The call for regulation

For some members of the crypto community, further regulation would be a negative prospect, arguing that the idea that regulatory action in the market or the introduction of central bank digital currencies (CBDCs) would deter new investors and contradict the ideology underlying decentralised assets.

Despite this, the introduction of stricter rules around crypto would allow regulators to crack down on criminal activity. For many long-term investors and newcomers alike, this is an obvious benefit – while some individuals may be keen to hop on the crypto wagon, others may have serious security concerns, which prove to be a significant block to them entering the market. In short, increasing regulatory oversight could encourage more investors to take the leap into the crypto space.

Similarly, many investors are put off by the elevated volatility in the market, which is less of an issue in more regulated asset classes. Of course, these fluctuations are partly a result of the fact that cryptocurrencies are a nascent currency and speculative risk assets. However, stronger regulation could make the markets more predictable and consistent, increasing investor safety as time goes on.

Ultimately, further regulations would legitimise the crypto environment, bringing it further into the mainstream. As a result, we could see private sector companies beginning to enter the market, increasing innovation in the crypto arena. Air Asia, for example, has plans to convert their air miles into a cryptocurrency, which would allow customers to buy seat upgrades or refreshments. Increasing regulations, therefore, could encourage more firms to launch their own digital assets.

At HYCM, we believe that increasing regulations is a vital next step for the development of the crypto market. In doing so, investors will have access to a much wider range of innovative assets to explore as we inch evermore closer to the future of trading.
Note: Cryptocurrencies are not available for trading under HYCM (Europe) Limited and HYCM Capital Markets (UK) Ltd.