How Regulatory Uncertainty is Affecting Crypto Markets

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The cryptocurrency market is one that has lots of changing rules as it regards to regulations constantly changing and envolving and this affects the market adding to it's instability, the market is relatively young and the unclear regulation is not helping matters and due to the unclear regulation it no doubt potentially have great effects on the cryptocurrency market. The market needs a stable regulatory framework in other to better function as proper regulatory framework helps to provide a certain level of clarity to the market whilst helping to boost investors confidence so no doubt regulatory uncertainty works against clarity of the cryptocurrency market which isn't good at all.

In a stable regulatory environment the cryptocurrency market could actually provide a guarantee that ensures users and customers are protected and their interest cared for, truly it stable regulation would help to enhance innovation and spirit of entrepreneurship as businesses won't shy away from engaging directly with cryptocurrency they would know that they will definitely be protected due to the fact it's properly regulated and being properly regulated means reduced volatility which will likely make it easier for big institutions to come in here because the market is properly regulated hence legitimacy and credibility is certified now that's really what would have been in a well regulated framework for cryptocurrency but as things are presently the regulation surrounding cryptocurrency use is unstable.

Because of the instability in cryptocurrency regulations it actually impacts the confidence of those already invested into cryptocurrency and those looking to come into this space as well as lowering the amount of innovations we might have seen here otherwise, truly regulatory uncertainty affects even business operations, it would have been very easy for mainstream acceptance of cryptocurrency in a well regulated environment and infact not only that proper regulations would have better help to add risk management to cryptocurrency investing but ofcourse that is not the case we are in an environment where different regions have varying rules on cryptocurrency use, some favourable others unfavourable for cryptocurrency. Well I will be outlining below in details some of the ways regulatory uncertainty is affecting crypto market:

Market Volatility

Indeed regulatory uncertainty leads to extreme volatility in the cryptocurrency market and this regulations could be in various forms actually, it could be in sudden change in regulatory stance or new enforcement action by the government or a possible proposed legislation which is unfavorable to crypto that could trigger some unforseen price action which is the volatility we are referring to, there maybe a new regulatory guidance from government and this causes market volatility due to the effect that this new guidance has which could be that it leads potentially to fear and uncertainty from investors causing many to panic sell which could potentially lead to a reduced market liquidity making the market primed to be potentially manipulated yes they could also lead to speculation and hype and all this leads to market volatility.

Sudden regulation changes guiding cryptocurrency use often leads to whipsaw price movement and ofcourse all this could scare away potential investors and there are alot of regulations that leads to market volatility it could be just the fact that there isn't a clear legal status on crypto use or fear of future strict regulations or bans or living in am environment where regulations are constantly envolving or even when the regulatory bodies seems to be giving conflicting signals, any of this is enough to cause market volatility and this much volatility actually works against cryptocurrency as it leads to stifled innovation and growth exposing the market to be easily manipulated and makes it harder for cryptocurrency to gain mass adoption as investors confidence are lowered considerably well which is all due to regulatory uncertainty.

So yes market volatility is one of the effect of unstable regulations on the cryptocurrency market, it could work out either good or bad for the market as there have been instances of both cases in the past like the case in 2017 when china banned ICO and that subsequently lead to BTC dripping 10% or in 2018 when there was a crackdown in regulation in Japan it lead to BTC dropping by almost 20%. Now these are the negative cases we have positive examples of how regulations have impacted the market like the 2017 US SEC's ICO guidance that lead to a 20% gain in BTC price, so the point being that the uncertainty in regulations affect cryptocurrency market as it leads to volatility in the market.

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Investor Confidence

Lack of proper regulations also leads to lose of confidence from investors, it's very easy for investors to lose confidence in a market that isn't properly regulated most times from what we have seen in the cryptocurrency market when there is much ambiguity in regulations it leads to the confidence of the investors dropping rather sharply that's when we have fearful market sentiments which is sometimes caused by uncertainty in regulations. Make no mistakes it's individuals and institutions that drive the market, we can call it retail and institutions investors and during periods of high regulatory uncertainty as is often the case their confidence reduce accordingly and could spiral to a large sell off.

When the regulations guiding cryptocurrency use is unclear in a particular region or when there is fear that future regulations may be strict on crypto we often see people reacting to this sometimes this leads to consolidating market as people will just be watching to see what they rules are before knowing whether to invest or not and that could be a very boring market phase as everywhere would be stagnant especially when there people are expecting a change in regulations most would just sit on the sidelines to watch what the news will be before deciding if it's worth investing in or not so the uncertainty guiding cryptocurrency regulations could act as a deterrent to both retail and institutional investors because investors need to believe in the long-term future of a project before investing and if they feel future regulations would not favour an asset they would be skeptical about investing because their confidence on that particular asset has dropped.

So without a doubt lack of clear guidelines on cryptocurrency use as well as sudden changes in crypto use could potentially affect crypto price and it's investors I mean no one would want to invest in any asset class which could be a legal liability no one wants to be in that situation that is why lack of proper regulations often leads to investors confidence dropping but when the investors are positive that new or future regulations would favour cryptocurrency or when there is clear regulatory framework it would make investors to have high confidence in such times we see both retail and institution investors entering the market yes good regulatory framework leads to increased investors confidence which is good for cryptocurrency price in the long-term, just as lack of proper regulations could deter investors good regulatory environment for crypto helps it truly flourish as investors would be confident.

Innovation Constraints

Regulation uncertainty also affect the cryptocurrency market as it leads to innovation constraints, yes the cryptocurrency market is one that needs clear regulatory framework inother to truly create wonderful innovation but when there is uncertainty in regulations it often lead to innovations slowing down considerably in the cryptocurrency space, cryptocurrency market is one that will do well and depends on more new innovations to continue flourishing but regulatory uncertainty acts to stifle new innovations here or potentially slow it down which is really bad for the cryptocurrency space as innovations is the life and blood of this market.

The unclear regulatory environment could cause developers to slow down on their plans to make any innovation or even stop or deter them from lunching projects or possibly lead to this developers having second thoughts on a new idea or features they want to roll out just because there are not sure of what the future holds and are uncertain of what they regulation would be then and as such they wouldn't want to waste effort lunching a project which could be banned or restricted in the future or they may fear that future regulations may restrict the use of the innovative upgrade they want to bring about, which is really not good for crypto whilst a proper regulatory environment would act to help spur developers to carry on and lunch projects and unveil more innovative technological upgrades and features which will bode well for the cryptocurrency market.

Fear is something that often restrict one and that is how it is here also, when there is fear of future regulations affecting cryptocurrency it could limit developers from reaching their fullest potential because we have areas that truly a lack of rules determine how far it would progress like on the area of decentralized application or token issuance, yes this relies on maximizing it's fullest applications but change in regulations could halt this potential applications thereby stoping it's progress.

Risk of Stifling Institutional Involvement

Regulatory uncertainty brings less institutional investors into the crypto market and that's really a major negative impacts especially as the cryptocurrency is one that needs institutional adoption to give it credibility and ensure trust of the general public but ofcourse this become difficult in an unclear regulatory environment because I really doubt big institutions would want to invest in an market that poses regulatory risk or even touch such a market with a ten foot pole, they would steer clear of that market because they care about their portfolio wouldn't want to gamble on that with investment in an asset that could be rendered insignificant but sudden change in regulations so regulatory uncertainty truly affects the crypto market as it brings risk of stifling institutions involvement which is in stark contrast of what the crypto market needs.

Banks and the big hedge funds or even insurance companies wouldn't want anything to do with a market with unclear regulations not to talk of pension funds they wouldn't because they care about their institutions and how they appear and as such avoid an unregulated market because this could set them up for an unprecedented loss which every institutions avoid infact it would be hard for hard for institutions to want to any investment related to cryptocurrency without any regulation clarity due to the fact that doing that exposes them to great risk, every good business person knows to always consider the risk involved in any investment venture and most institutions share the sentiment that investing in an unregulated market is not worth it all, it's not worth the risk at all.

What would likely interest institutions to come into the crypto market is clear regulatory framework or atleast hope of such would really help to encourage institutional investors leading to growth and adding further to legitimacy here.

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Conclusion

Those are the possible challenges or effects that comes from an unclear regulatory environment ofcourse it would be better for a clear regulatory framework because that would help spur growth and development in this space truth there is still some uncertainty with cryptocurrency regulations but in recent times we could say things are getting fair and better as we have seen tight regulations lighten over time showing truly that there is hope for the future and cryptocurrencies in general are still on track to achieving everything it sets out to originally and gaining mainstream acceptance in global financial order.