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21 Feb 2022

What Would Happen if Governments Regulate Bitcoin?

You've probably heard many things about what would happen if governments imposed Bitcoin regulations. Some argue introducing Bitcoin regulations would destabilize the crypto market. Others also say regulating Bitcoin would protect investors and stop market manipulation.

Nevertheless, the truth is that Bitcoin's integration into various global industries and national economies has happened. Hence, regulating it would have significant impacts on multiple international economic sectors. The following article explores some of what we can expect if governments control Bitcoin. 

A decline in Bitcoin Prices 

Bitcoin currently operates as a decentralized currency, enabling its users to send and receive money across international borders without external intervention. That has made Bitcoin seem like a more reliable means of payment and investment vehicle than fiat currencies. Perhaps, the autonomy in Bitcoin transactions is why most people prefer it over fiat money. 

Thus, regulating Bitcoin will automatically deny users autonomy in transactions. It will give government regulators the authority to track and report users' transactions. That would make Bitcoin seem more restrictive, discouraging its adoption. Such negative perceptions would disrupt investor confidence, causing Bitcoin prices to fall rapidly. 

Bitcoin prices move up and down based on public perception. News of Bitcoin regulations impacts negative perceptions that would weaken the public's confidence, making investors sell off their positions quickly. For instance, Bitcoin prices lost $500 in 2019 when China banned ICOs. 

Increased Transaction Costs 

Bitcoin has also gained immense popularity due to its low-cost money transfers. The absence of third parties in Bitcoin transactions is one of the reasons behind the lower fees. Bitcoin transactions occur on a distributed blockchain network without intermediaries. However, regulating Bitcoin would allow the government to re-introduce the traditional financial system, with intermediaries monitoring and overseeing transactions. 

While people would still transact Bitcoin normally, the costs will be much higher than the current rates if governments impose regulations. The government may have to constitute a new agency to govern the crypto industry. The multiple players involved would require Bitcoin users to pay extra commissions and taxes, contributing to higher transaction fees. 

Limited Transaction Volumes 

Bitcoin is currently decentralized, meaning there is no limit to how much you can transact in a given day, week, month, or year. Thanks to Bitcoin's ease of access and higher divisibility, users can buy and sell tiny fractions, called Satoshis or extensive Bitcoin holdings from exchange platforms such as bitcoin-buyer.io, without any external interference.  

Bitcoin users could lose all those privileges if governments introduce regulations. Like fiat currencies, the governments will control Bitcoin transaction volumes conducted on crypto exchanges and users' wallets. Government regulators would stipulate the amount of Bitcoins that crypto exchanges and individuals can transact daily, monthly, and annually. 

Sometimes, the regulators could even direct crypto exchanges to decline Bitcoin payments to and from certain countries, disrupting capital flows and global trade. 

Increased Demand for Other Cryptocurrencies 

Bitcoin is currently the most prominent cryptocurrency, accounting for almost 50% of the entire crypto market cap. However, it also faces intense competition from other virtual currencies, including Ethereum. Regulating Bitcoin would significantly harm its reputation, making investors switch to other competitive digital tokens. That could see Bitcoin lose substantial value in a short period, disrupting the market even further. 

Overall, experts, regulators, and investors have different opinions about what would happen if governments regulated Bitcoin. However, the majority agree that controlling Bitcoin would be detrimental to the crypto market and various national economies, with varying interest levels in cryptocurrencies.

 

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