How Government Policies are Affecting Major Cryptocurrencies?

How Cryptocurrencies Getting Affected by Government Policies

Cryptocurrency market is known for its volatility. The prices may skyrocket one day and plummet the next day unexpectedly. The market capital of cryptocurrencies gets influenced by many factors. Government policies and regulations are one of them.

Government Regulation and Price Movements:

Government intervention can impact cryptocurrency prices in many ways. Governments can influence the prices of assets by their trading activities in international markets. They can also dampen the market participants’ enthusiasm and make a coin’s price decline significantly by implementing regulations that raise the operational costs and add complexities. Similar to gold import restrictions, governments can make an asset scarce by imposing controls on it.

Challenges of Regulating Cryptocurrencies:

Government regulations can affect the cryptocurrency market largely but it also faces challenges while imposing regulations due to cryptocurrencies decentralized nature. Cryptocurrencies operate on a decentralized ledger system and its spreaded across multiple countries. This makes regulation coordination a difficult task. Cryptocurrencies’ diverse impacts on national economies further complicate the regulatory works.

The differing approaches of China and Japan toward Bitcoin are examples of these challenges. When China implemented a ban on initial coin offerings (ICOs), it led to a temporary price decline. In contrast, when Japan recognized cryptocurrencies as legal tender, it showed the influence of regulatory responses in digital assets.

Limited Impact on Cryptocurrency Markets:

Despite the fact that government regulations can highly influence the crypto market, their impact on major cryptocurrencies like Bitcoin is limited. Renowned economist Kenneth Rogoff argues that Bitcoin is unlikely to replace government-issued money due to the challenges it poses for tax collection and for combating criminal activities. Rogoff suggests that even if governments could perfectly observe transactions, Bitcoin might retain value due to its potential to offer lower transaction fees compared to traditional banking systems.