Will regulation stop the expansion of cryptocurrencies?

The cryptocurrency industry has continued its downward trend since the beginning of 2022, and every attempt to rebound so far has ultimately been met with a sell-off. Meanwhile, however, Bitcoin has slipped 'only' less than 50% from its peaks in autumn 2021. At the same time, many technology companies have seen declines of up to 80% during this time.  The price volatility of the 'King of Cryptocurrencies' therefore still remains limited. Some investors may assume that the reason for the consolidation of Bitcoin's price is the fact that there are many 'big players' willing to buy in the sub-$40,000 zone, which stops deeper declines. This would be confirmed by the recently registered high activity of 'big addresses' and the increase in transactions exceeding $1 million.  At the same time, however, the crypto market is worried about the restrictive stance of regulators.

Ambiguous future for the cryptocurrency industry

Since the outbreak of the war in Ukraine, Europe has been in a state of economic conflict with Russia. Severe sanctions have been imposed, including on Russia's richest so-called oligarchs, who until now have been regular visitors to Western European territory. European financial institutions fear that the oligarchs may be able to evade sanctions thanks to the opportunities offered by cryptocurrencies. Potentially, this could have a positive effect on the valuation of cryptocurrencies if an additional few or even tens of billions of dollars are influenced. At the same time, however, investors are concerned that crypto regulation could change the industry and render many projects useless, or even legally ban the use of cryptocurrencies. After all, electronic national currency projects known as CBDCs could theoretically threaten the valuation and popularity of cryptocurrencies.

Regulation - is there anything to fear?

For the moment, we do not yet know whether cryptocurrencies will face such restrictive regulations. Nor is how they would be implemented. The EU has conveyed that for the moment it will monitor the situation in the crypto market to stop potential attempts to circumvent sanctions. We can guess that the announced regulations could mean stricter AML and KYC regulations on the largest exchanges, which will require detailed and complete information from clients. It is also possible that special legal bodies will be set up to look for fake projects and scams so that creators can be held accountable. In this context, regulation seems something needed and, paradoxically, could have a positive impact on the perception of the cryptocurrency market.

If the creation and implementation of CBDC currencies is not associated with the automatic outlawing of cryptocurrencies and their relegation to the 'dark zone', it may not at all negatively affect the valuations and prospects of the industry. A characteristic of cryptocurrencies based on blockchain technology is the absence of an external regulator in the form of a Central Bank and this feature the crypto industry will be able to retain. The crypto market will continue to be a place that can attract investors who value independence and seek modern financial solutions.

Can cryptocurrencies collapse?

If the implementation of CBDCs means outlawing cryptocurrencies and severe financial penalties for transacting in the crypto market, this could slow down or even stop the development of the cryptocurrency market. A real crash in project valuations and a mass exodus of investors will then be inevitable. However, this scenario currently seems unlikely given the scale of interest in the crypto industry and blockchain technology from major financial institutions and technology giants.

The cryptocurrency industry is still volatile and a rally of Bitcoin to new historical peaks as well as a return to the $30,000 area are not excluded at the moment. It is worth noting the correlation of cryptocurrencies with stock indices. In the face of news about regulations, we can of course expect increased volatility in the market. On March 14, a committee in the European Parliament will vote on the regulation of the cryptocurrency market after the presentation of the draft legislation on cryptoassets (MiCA). However, the total collapse scenario remains an unlikely speculation.

The Bitcoin price retreated sharply after buyers failed to break above the main resistance at the $45,000 level, which coincides with the 61.8% Fibonacci retracement of the upward wave started in July 2021. Nevertheless, the bulls managed to stop the declines at the level of $38,000 which coincides with the upper limit of the 1:1 structure, the uptrend line and the 78.6% Fibonacci retracement. The most popular cryptocurrency started today's session with increases and is heading towards the psychological resistance at the level of $40,000. Source: xStation5