Bitcoin’s unprecedented growth since its public release has led to the creation of an entirely new financial model in DeFi. However, adoption has been a significant challenge in this space, largely due to its non-regulated nature, which has kept many world governments wary.
While non-regulation has been the defining factor behind the rise of Bitcoin as the world’s best-performing asset over the last decade, regulation has turned out to be the critical factor for adoption. Nations like India have been one of the primary advocates for Bitcoin regulation, and have voiced this during their G20 Presidency as well.
Think tanks and international organizations such as the International Monetary Fund (IMF) have extended an olive branch to this proposal, projecting that regulations could help make the stability of Bitcoin systematic in the long term.
The IMF has also mentioned that the regulatory frameworks must be replicated globally and remain coordinated, the absence of which may lead to hampered capital flows. Statements shared by pro-regulation entities and states have mentioned that a potential governance model in Bitcoin and the larger VDA (Virtual Digital Asset) space must not be rigid and should be subject to gradual changes as requirements and the market evolve to avoid massive selloffs.
These principles have led to some arrangements in the Western hemisphere, particularly in the US and UK, providing a much-needed frontal look to sustain Bitcoin’s regulatory maturity in the coming years.
Bitcoin and the larger VDA ecosystem represent a globally emerging financial market, and if developing economies are considered, they could face difficulties with legal tender substitution with these assets. In layman’s terms, this represents a growing concern about making such nations’ economic integrity weaker, considering Bitcoin’s tremendous volatility.
This school of thought is gradually becoming the motivating factor for cross-border collaboration to create a global regulatory framework. However, tremendous efforts will be required to create a global regulatory framework for Bitcoin that is not only comprehensive but consistent and coordinated, and helps to sustain financial stability in a technologically oriented world outlook.
This aspect is one of the major reasons behind several countries pushing towards creating a global framework. For instance, a draft ‘Crypto Bill’ is being made in India to regulate and regularize Bitcoin and the larger VDAs. Similar bills have already been passed in the US, UK, and elsewhere in the world. The IMF has also reportedly created a financial & regulatory strategy that is similar to these national bills.
With Bitcoin’s market capitalization rising significantly year-on-year, and more users adopting this asset as one of the primary occupiers of their portfolios, the establishment of a global regulatory framework indicates that governments are becoming more interested in this space. Furthermore, US President Donald Trump’s order to create a strategic reserve for Bitcoin also provides a boost in this aspect, and regulation seems to be inevitable in the coming years.
While the creation of a global systemic regulatory framework is gathering steam, its success entirely depends on the level of cooperation and coordination. Bitcoin, for example, remains a finite asset. As government participation across the world dwindles in creating a regulatory framework, it will be important to ensure that similar levels of cooperation and coordination are guaranteed.
Furthermore, this will not be a one-time operation, as sustained coordination will help in gradual changes. For example, Country A may want to have insights or regulatory power on particular matters regarding Bitcoin usage, which may or may not be suitable for Country A. In these situations, in-depth dialogues will be imperative to find a middle ground.
Additionally, a global regulatory framework must offer equal opportunities to all countries and address the risks. Also, service providers within the domain would be required to be licensed similarly to traditional finance companies, so transactions, storage, and any similar activities could be clearly articulated.
The mechanism must also be well-planned to ensure user safety. While some experts project that this could destabilize the primary defining factor for Bitcoin, which is non-regulation, it seems to be assumptive at this point, given the world’s preparedness.
Numerous considerations will have to be made in the upcoming years to create a global governance model for Bitcoin and the larger VDA ecosystem. While the entire idea behind the launch of Bitcoin was to create an alternative financial ecosystem that is not regulated by any means, regulation at present does not necessarily represent the same.
At best, it will have some basic information to tax VDA-generated capital gains and some basic measures to curb illegal activities. Since Bitcoin is mined and is not minted or created by governments, absolute regulation remains irrelevant, and going forward, increasing user adoption will depend on how much information related to Bitcoin circulation, transactions, and taxation aligns with global governments' viewpoints.
However, the whole idea behind DeFi has been to create a level playing ground, and the engineering of Bitcoin and its intricacies will keep ensuring that no entity becomes the primary stakeholder to dictate terms.
[Disclaimer: The views expressed are solely of the author and Analytics Insight does not necessarily subscribe to it. Analytics Insight shall not be responsible for any damage caused to any damage caused to any person/organization directly or indirectly.]