Cryptocurrencies have evolved from digital toys into trillion-dollar technologies that people hold as investments or buy with. Proponents believe cryptocurrencies can transform how we spend and invest our money; critics, however, claim cryptocurrencies empower criminals and terrorists, cause drastic price swings, and consume immense amounts of electricity.
The crypto sector still struggles with an image problem: Last year, high levels of volatility reduced the value of many cryptocurrencies such as Bitcoin and Ethereum while exchanges closed down or collapsed altogether. Sam Bankman-Fried was recently sentenced to prison for running a $17 billion Ponzi scheme which defrauded customers, while smaller firms folded or shut down altogether leaving investor losses estimated in billions.
As government regulators respond to this uncertainty, they have taken steps to create rules for the crypto sector. The Securities and Exchange Commission has intensified its enforcement against crypto firms and now calls for crypto to be classified as securities similar to stocks.
Classification is crucial, according to experts, because it will set rules for holding, trading, creating and taxing cryptocurrency assets. A one-size-fits-all approach could cause confusion; different currencies have distinct features which require being treated differently.
Due to this uncertainty, some investors are opting out of crypto. This trend is particularly prevalent among larger institutions who wish to wait until regulatory conditions become clearer before participating.
However, for certain investors the risks may still be worth taking. As long as they’re prepared to face and navigate these challenges, cryptos could still provide a solid investment option.
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