The additional scrutiny around the Bitcoin (BTC) halving event could have an indirect effect on its future regulation.
This is according to Natalia Latka, policy director and regulatory affairs at blockchain analysis firm Merkle Science.
“While there is no direct impact on regulations or regulators’ approach, the economic and market dynamics influenced by halving events could indirectly affect regulatory considerations, especially in areas related to market stability and investor protection,” Latka told Cointelegraph.
The halving and the approval of spot Bitcoin exchange-traded funds (ETFs) by the United States Securities and Exchange Commission (SEC) in January are helping to fuel a Bitcoin bull run, making crypto hard to ignore.
Should Bitcoin also become more volatile during this period of increased interest and mainstream media coverage — a not altogether unlikely scenario — regulators could feel inspired to consider action.
Latka went on to outline a further scenario that could lead to increased regulatory scrutiny.
“The Bitcoin halving could also impact energy consumption,” said Latka. “With rewards for mining reduced, less efficient miners could be pushed out of the market, potentially leading to a concentration of mining activities among larger players and a concentration of geographies.”
Latka adds, “This might attract regulatory scrutiny regarding the environmental impact of PoW [proof-of-work], leading to regulations focused on sustainability.”
Further clarity is required in the United States
Cointelegraph spoke with Andrew Balthazor, a litigator with legal firm Holland & Knight, to better understand the current regulatory framework in the United States.
According to Balthazor, U.S. law remains unclear on Bitcoin and cryptocurrency at large.
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“I think there’s still some clarity in terms of what constitutes a security transaction in the United States, although there’s a general agreement that Bitcoin probably isn’t. We still don’t have a definitive statement one way or the other on even Bitcoin or Ether, or any cryptocurrency for that matter,” Balthazor said.
Frustratingly, when courts have ruled on cryptocurrency, those courts tend not to be high enough to be binding across the union.
“We don’t tend to have a lot of court adjudications saying definitively this token is a security in all circumstances. So, we have some conflicting lower court decisions, which in the U.S. aren’t binding on other courts. So that’s the issue.”
Without clear guidance from the SEC or the courts, the U.S. finds itself in a situation referred to as “regulation through enforcement,” where the bounds of lawful behavior are measured through enforcement action.
Latka said, “The absence of clear, upfront guidelines means businesses often find themselves navigating a regulatory minefield, uncertain if their operations comply with current or future interpretations of laws.”
Balthazor’s experience shows that the situation has a real impact on businesses that want to and are trying to do the right thing:
“I have clients who are frustrated and uncertain about whether their projects might be treated as securities, paying attorneys to negotiate for years.”
Balthazor said this is only possible for companies with “deep pockets,” adding that he would like to see some mechanism put in place so that corporations and the SEC could deal with each other more transparently.
“It would be great to have a more formal process where the SEC could say, ‘Here are our concerns about your project. We think it’s too much like a security for these reasons,’” said Balthazor.
A moving target for U.K. businesses
In the United Kingdom, the Financial Conduct Authority (FCA) deals with crypto asset regulation, bringing forward rules that, in instances such as the approval of crypto investment products, have been well-received, and in others,…
Read More:Bitcoin halving could ‘indirectly’ affect cryptocurrency regulation