How Political Decisions Could Impact the Crypto Market

We Will Explore How Political Decisions Could Impact the Crypto Market

Cryptocurrencies can be impacted immensely by political decisions because the market, in general, is unstable, and dynamics are rather sharp. Such decisions can take many forms, ranging from a change in the legal and regulatory framework to shifts in policies governing international trade, and they often present multi-faceted effects that may either be positive or negative for the investors and firms in the systems and the financial systems in general. In the following article, the author is going to investigate how political decisions could potentially influence the crypto market by explaining what might happen to these distinct groups of interested parties if a particular political decision was made with regard to cryptocurrencies.

RegulatoryChanges and Its Effects

National Regulations:

As for the current state of digitized money, governments across the globe are still learning how to regulate this new form of money, or ‘cryptocurrencies.’ More rules and regulations have negative impacts, such as reducing the confidence of the market and, hence, lowering the investment rate.

Tax Policies:

Politics can also affect a number of facets of cryptocurrency usage, including, but not limited to, taxation. Of course, so long as the tax requirements appear reasonable to the investors, they can boost the investment, but a highly taxed investment can deter the investors.

Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations:

AML and KYC standards are meant to fight unlawful actions but can also influence the convenience of the activities carried out within the crypto market. Robust AML and KYC measures may increase the price and operational challenges of providing trading platforms, which may comprehend hits to the casual trader.

International Trade Policies

Sanctions and Trade Restrictions:

Sanctions and trade limitations can affect the market indirectly as they can limit the freedom of individuals or entities from different countries to invest in the crypto market. Many countries, especially those that are under sanctions, are now moving to cryptocurrency to transact since regular methods like SWIFT cannot be used.

Cross-Border Transactions:

Policies that encourage or control cross-border operations can either positively or negatively influence the cryptocurrency market. Cryptocurrencies are also common in international remittances due to the lower costs associated with using them compared to traditional banking systems.

It provides a head start for a country's political stability and economic policies and sets a benchmark for improvement.

Political Instability:

Specific markets, namely those embroiled in political instability that results in economic insecurity, are encouraged to invest in such systems, while others are deterred. Politics can also influence the value of coins and tokens since people may seek out more stability in the form of coins during political turmoil, which could lead to higher demand for the coins.

Monetary Policies:

Government and central bank decisions, such as interest rates, the rates at which they buy and sell their local currencies in exchange for foreign currencies, and quantitative easing programs, play a significant role as well. Reduced interest rates and the expansion of the money supply have been seen to cause inflationary expectations, resulting in the seeking of other investment options like cryptocurrencies.

Technological and Innovation Policies

Support for Blockchain Technology:

Blockchain technology, which is an underlying technology for cryptocurrency, can be positively influenced through governmental funding, even if it is directed to the development of other industries. Supportive policies for research, development, and use of blockchain can improve the stability and reliability of cryptocurrencies.

Digital Currency Initiatives:

On the one hand, the rising adoption and implementation of CBDCs might pose some threats to the cryptocurrency market. While CBDCs could advocate for digital currencies’ authenticity and educate the general public regarding digital transactions, there is a significant possibility of a threat to the existence of cryptocurrencies.

Case Studies and Real-World Examples

The United States:

In the U.S., essential variations in laws and regulations, including the Securities and Exchange Commission's stand regarding ICOs and the categorizing of cryptos, also profoundly influence the market. Some of the positive actions include the approval of ETFs based on Bitcoin futures, which has led to the expansion and promotion of cryptocurrency investments.

India:

The uncertainty of India’s policy regarding cryptocurrencies has stirred swelling confusion from legal complexities. At other times, the government has contemplated how to completely outlaw cryptocurrencies, which has led to a flare-up of market instability and capital flight.

El Salvador:

Therefore, El Salvador’s adoption of Bitcoin as legal tender in 2021 is well-suited as a unique case. Although it has raised awareness and increased the uptake of the leading cryptocurrency in South American countries, it has also raised concerns about financial stability, cryptocurrency regulation within the country, and conformance to international financial standards.