The cryptocurrency market is associated with freedom, anonymity and transparency of transactions that everyone can follow on the blockchain. However, the rise in popularity and the increasing involvement of retail investors may cause increased regulation for this business.
The original assumption was that any attempt to regulate the cryptocurrency market would destabilize it. They would violate the fundamental rationale for its creation, lead to a decrease in interest, and the need to participate in cryptocurrency trading. However, if this market is to function alongside regulated stock exchanges and brokers, intermediaries in purchasing financial instruments must be subject to similar rules.
A significant step towards regulation has just been made by the Binance exchange, which, according to its CEO, is expected to generate around $0.8-1 billion in profit annually. In its announcement yesterday, the exchange stated that daily withdrawal limits will be adjusted to 0.06 bitcoin for accounts that have passed only basic verification. This change applies to new account registrations, and will be implemented for existing accounts in stages from August 4 to 23 this year. Previously, the daily withdrawal limit for users without account verification was 2 bitcoins per day.
Thus, the largest cryptocurrency exchange is taking active steps to increase compliance with local regulations and will work with regulators as the next cryptocurrency framework is introduced.
What is the effect of the above changes at this point? Well, never in the past month or so, we have seen such a rapid outflow of capital from cryptocurrency exchanges. Only in the last three days 80 thousand bitcoins worth about $3 billion were withdrawn from Binance, according to the CryptoQuant website. It could be assumed that these are funds that do not want to undergo the KYC (full customer verification) process, and the scale of crypto outflows from exchanges may still increase until August 4.
What could this mean for the price? The progressive tightening of verification and tax regulations means that cryptocurrencies whose origin is not clear may disappear from exchanges, and with that, the supply overhang will decrease. Declining supply, and in significant quantities, could in turn help cryptocurrency prices rise. Thus, regulations, instead of hurting prices, may help them in such a perverse way.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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