Part 3
CRYPTOCURRENCIES have gained significant popularity over the past few years as a means of investment, but despite their growth in popularity, they still lack proper regulation. This lack of regulation makes cryptocurrencies a highly speculative and risky investment; and it is one of the reasons why many financial experts caution against investing in this new and untested asset class. This article will explore the lack of regulation in the cryptocurrency market and why such makes crypto a bad investment.
1. One of the main reasons why cryptocurrencies lack regulation is that they are decentralized and operate independently of government control. Unlike traditional investments such as stocks and bonds, which are regulated by governments and central banks, cryptocurrencies are not backed by any central authority. This lack of central authority means that there is no one to guarantee the stability of the currency or to provide a regulatory framework for the market. As a result, cryptocurrencies are often subject to price manipulation, fraudulent activities and other forms of market manipulation.
2. Another factor contributing to the lack of regulation in the cryptocurrency market is the lack of proper infrastructure. Unlike traditional investment markets, which have established regulatory bodies, trading platforms and other infrastructure, the cryptocurrency market is still in its early stages of development. This means that there are few established mechanisms in place to monitor and regulate the market, which makes it vulnerable to fraudulent activities and market manipulation.
3. Another factor contributing to the lack of regulation in the cryptocurrency market is the lack of transparency. Unlike traditional investment markets, which are required to disclose information to regulators and the public, the cryptocurrency market operates in a largely unregulated and opaque environment. This lack of transparency makes it difficult for investors to make informed investment decisions and it also makes it difficult for regulators to monitor the market and enforce rules and regulations.
The lack of regulation in the cryptocurrency market also means that there is a lack of investor protection.
Unlike traditional investment markets, where investors are protected by government regulations and the rule of law, there are few legal protections for investors in the cryptocurrency market. This means that investors can suffer significant losses if the value of their investment decreases or if they fall victim to fraudulent activities. This lack of protection makes cryptocurrencies a particularly risky investment option for individuals who are not familiar with the market and who do not have the financial resources to withstand large losses.
The lack of regulation in the cryptocurrency market also makes it difficult for governments to collect taxes and enforce anti-money laundering and counterterrorism laws.
Because cryptocurrencies are decentralized and operate independently of government control, it is difficult for governments to monitor and regulate the flow of funds and to prevent illegal activities such as money laundering and terrorism financing. This lack of control and enforcement makes cryptocurrencies a potential tool for criminal activities, which can negatively impact their value and increase their volatility.
The recent legal actions taken by the United States Securities and Exchange Commission (SEC) against Binance and Coinbase, two of the preeminent cryptocurrency exchanges, underscore the assertions I previously made. In an extensive 136-page lawsuit, SEC Chairman Gary Gensler pointedly accuses Binance of being engaged in “an extensive web of deception, conflicts of interest, lack of disclosure and calculated evasion of the law.”
In conclusion, the lack of regulation in the cryptocurrency market makes cryptocurrencies a highly speculative and risky investment. With their lack of central authority, proper infrastructure, investor protection, transparency and government control, it is clear that investing in cryptocurrencies is not a good idea for most individuals. Before investing in cryptocurrencies, individuals should carefully consider their financial goals and risk tolerance and seek the advice of a financial professional if necessary. While the potential for high returns may be tempting, it is important to remember that with high risk often comes high reward. The lack of regulation in the cryptocurrency market makes investing in crypto a bad investment for those who value stability, security and predictability in their investments.
Atty. EnP, Zigfred Diaz, RFP, ReA, ReB and CSS, is a Cebu-based registered financial planner of RFP Philippines. Aside from practicing law, he is a licensed environmental planner (EnP), real-estate broker (ReB) and appraiser (ReA). To join the 102nd Registered Financial Planner program this July 2023, e-mail info@rfp.ph or text 0917-6248110.