Looming government regulatory crackdown, along with reported incidents of fraud and perceived overvaluation of the online currencies, has been blamed for the current market correction. However, an expert believes that while it may cause initial price collapse, government regulation will ultimately help the cryptocurrency market thrive and protect investors.
“What’s useful is that as regulation will become more clear that will actually allow the space overall to thrive.” That is the assessment of Christian Catalini, an assistant professor at MIT Sloan School of Management.
Professor Catalini believes that government regulations may help curb drastic price fluctuations in the future. As an example, Catalini’s points to Bitcoin’s “wild ride” which was priced at only $1,000 a year ago and then climbing to is an all-time high of $19,000 last December and finally starting its rapid slide this January. As far as he is concerned, the crypto’s spectacular price climb may not be purely due to market forces at work. In fact, he speculates that there might be some manipulation involved.
“It’s not clear how much of that was enthusiasm, hype, maybe even market manipulation,” Prof Catalini asserts.
And that is why government regulation could be the long-term answer. At the moment, the crypto market is generally unregulated which could, at least theoretically, make price manipulation a bit easier.
Aside from stabilizing prices, government regulation could also address potential risks facing investors in the cryptocurrency market. In particular, the MIT professor asserts that stronger regulation could help protect investors from scams.
There have been a number of reported cases where ICOs were being used as a way to scam money out of unsuspecting investors. ICO stands for initial coin offering which can be likened to a company’s IPO and as a means for newly established crypto companies secure funds from investors.
Apparently, ICO scams are so prevalent that it the offerings should be viewed with extreme caution by inexperienced investors. According to Catalini’s research,” between 14 and 30 percent of ICOs were very likely to be scams.” Reports of cases of ICO scams are also one of the factors causing investors to be jittery and, as a result, the cryptocurrency market’s current slump.
Thankfully, it looks like things are going to get better soon and that the crypto market is finally showing signs of recovery. Bitcoin, for instance, has experienced a massive price increase, reversing is a month-long trend of price decline.
After falling below $6,000, Bitcoin finally managed to post a massive gain in just a single day of trading. The cryptocurrency’s price surge by almost $2,000 until it traded at $7,900. Investor confidence on the crypto market was boosted by the positive outcome of the recent Senate Banking Committee hearing attended by Commodity Futures Trading Commission (CFTC) chair Christopher Giancarlo and Securities and Exchange Commission (SEC) chair Jay Clayton.
Giancarlo was supportive of the newly established crypto market. While he admitted that there are certain issues that need to be addressed, he argued that dismissing digital money is not the right approach.
“We owe it to this new generation to respect their enthusiasm for virtual currencies, with a thoughtful and balanced response, and not a dismissive one.”