Assignment (Essay)

Student Name: xxxxxxx

Module Name and Number: UJUGUPF-15-M International Banking and Finance Law

Word Count: 3000

Coursework Question: Who should regulate cryptocurrencies and how? Discuss considering

the recent cryptocurrency “craze” and subsequent “crash”.

Introduction

David Chaum was the first to develop electronic currency, often known as ecash. He developed

Digicash, which was the first iteration of this, in 1995. Earlier, sort of transaction required the

use of software and encrypted keys. Satoshi Nakamoto then created Bitcoin, which is recognized

as the first decentralized cryptocurrency, in 2009. Both the proof-of-work algorithm and a

cryptographic hash function were necessary. Cryptocurrency is a new type of cash known as

digital or virtual currency. Normally we use money for variety of reasons, such as purchasing

various products, making investments, completing transactions, and other activities all take place

in physical form1. A cryptocurrency is a sort of currency that doesn't have a physical existence; it

can only be exchanged digitally and more specifically it is a participant digital payment system

that allows individuals to make payments without the involvement of a financial intermediary.

These virtual currencies are unregulated and have no official backing. Broad acceptance of

cryptocurrencies has the potential to destabilize regulated payment networks and alter monetary

policy implementation; its rapid ascent offers a dilemma to governments around the world. As

well, because they encourage privacy, these currencies can be used for illegal reasons. The value

of cryptocurrency can be exchanged, including all digital currencies on the market, is determined

by supply and demand. If the value of a fiat currency declines, the value of Bitcoin rises in

relation to that currency. This is due to the fact that you will be able to obtain more of that

money with your Bitcoins2

1
Dniprov, O., Chyzhmar, Y., Fomenko, A., Shablystyi, V., & Sydorov, O. “Legal status of cryptocurrency as
electronic money”. Journal of Legal, Ethical and Regulatory Issues, 22, (2019): 1-6.

2
Daskalakis, N., & Georgitseas, P. “An introduction to cryptocurrencies: the crypto market ecosystem.” Routledge.
(2020)
 Working process of cryptocurrency

Every3 coin in cryptocurrency is cryptographically kept in the digital ledger in a safe manner, so

that no modifications to the transaction data can be made. Transactions are completed via the

internet and are stored in a blockchain. The blockchain preserves the transaction history of each

unit and is used to determine ownership. The best approach to visualize digital assets is through

virtual tokens. These tokens have value in the internal system and may be used to record banking

transactions and other important data. Its use as a financial system is still the most profitable part

of cryptocurrency. It allows users to exchange bitcoins with partners in exchange for goods and

services. Cryptocurrencies offer special advantages since they are not governed by a central

authority. Processing expenses are often negligible to non-existent. The government has less

authority and regulates less. This suggests that cryptocurrencies are widely available, resistant to

inflation, and have a clear transaction history.

Trading in cryptocurrency

Cryptocurrency4 trading is a new and expanding aspect of the crypto world. Trading is distinct

from the usage of cryptocurrency as a monetary system. Instead, users’ purchase and trade

cryptocurrencies in the same way that they would buy and sell stock in a firm. Purchasing stock

provides you a stake in a company, but purchasing a token gives you possession of a

cryptocurrency. In the United States, cryptocurrency exchanges are regulated in the same manner

as stock exchange transactions are. This illustrates how the bulk of users earn from the

cryptocurrency sector.
3
Lewis, A. “The basics of bitcoins and blockchains: an introduction to cryptocurrencies and the technology that
powers them.” Mango Media Inc. (2018).

4
Fang, F., Ventre, C., Basios, M., Kanthan, L., Martinez-Rego, D., Wu, F., & Li, L. (2022). Cryptocurrency trading:
a comprehensive survey. Financial Innovation, 8(1) (2018): 1-59.
Different types of cryptocurrency

Cryptocurrency has three major types:

1. Bitcoin

2. Altcoins

3. Tokens

Bitcoin

Bitcoin5 was the first cryptocurrency, created in 2009 by an individual or group of individuals

known as 'Satoshi Nakamoto.' Bitcoin, the initial cryptocurrency, is a fixed cryptocurrency. This

means that when 21 million Bitcoins have been mined, there will be no more. Because Bitcoin is

a finite currency, it may be utilized as a store of value investment instrument. Purchasing storage

of value currency is analogous to purchasing gold. While gold has some commercial wealth, it is

mostly used as a value store. Bitcoin built a community payment system based on block chain to

ensure transaction privacy and transparency. Furthermore, because transactions are irreversible,

the technology is expected to be valuable for trade, and smart contracts may help prevent fraud.

Proof-of-Work is the foundation of Bitcoin. This implies that a network of miners performs

sophisticated computations in order to maintain the Bitcoin blockchain operational. Miners are

rewarded for their efforts with newly minted Bitcoins. Due to Proof-of-Work, Bitcoin's

transaction process can now have a monetary value. A Bitcoin represents a specific amount of

computing power.

Altcoins

5
Vujičić, D., Jagodić, D., & Ranđić, S. “Blockchain technology, bitcoin, and Ethereum: A brief overview.” In 2018
17th international symposium infoteh-jahorina (infoteh) : (pp. 1-6). IEEE 2018
The term "altcoins" is derived from the phrases "alternative" and "coin." It is commonly used to

refer to all cryptocurrencies other than Bitcoin. The advent of cryptocurrencies and their

individual blockchain networks heralds a new age of experimenting and maturity in the crypto

sector, allowing for a broader variety of technical use applications.

Tokens

A "token" is frequently used to refer to any cryptocurrency other than Bitcoin and Ethereum.

Because Ethereum and Bitcoin are by far the most popular cryptocurrencies, having a term to

describe the multiverse of other coins is helpful. A token, in general, is an artifact that

symbolizes that instead, including another object or an intangible notion, such as a gift, which is

constantly referred to as a sign of the participant's admiration for the receiver.

Regulation of cryptocurrency

The goal of crypto regulations would be to safeguard investors, prevent fraud, and restrict

speculation in crypto assets, so encouraging greater investor trust. Cryptocurrency was created

with the primary goal of being decentralized and distributed—two extremely essential

characteristics that make Bitcoin difficult, if not impossible, to govern. Because Bitcoin is

decentralized, there is no one governing entity - no single state, person, or corporation owns or

controls Bitcoin or other cryptocurrencies. Bitcoin is controlled by multiple different entities all

around the world, making it almost hard for a single group to gain complete control of the

network and control it as they see fit6.

6
Nabilou, H. “How to regulate bitcoin? Decentralized regulation for a decentralized cryptocurrency.” International
Journal of Law and Information Technology, 27(3) (2019): 266-291.
 Bitcoin7 occurs in several regions at the same time because it is distributed. As a result, it is

extremely difficult for a single regulatory power to impose its will across borders. It also implies

that a government or other third party cannot technically raid and shut down an office. However,

with new restrictions, this might all change. Nothing exemplifies the uncertainty surrounding

cryptocurrencies more than their categorization by US regulatory bodies and revisions with US

President Donald Trump's tax reform legislation. Bitcoin is classified as a commodity by the

Commodity Futures Trading Commission (CFTC), yet it is classified as property by the Internal

Revenue Service (IRS).However, the categorization distinction has not resolved core issues

about bitcoin taxes. "The problem is technological," explains Perry Woodin, CEO of Node40, a

bitcoin tax compliance SaaS business. "It is hard to calculate your currency tax burden without

specialized technologies."

In 2022, the United States8 unveiled a new framework that would allow for further regulation.

The new mandate has given current market authorities such as the Securities and Exchange

Commission (SEC) and the Commodity Futures Trading Commission (CFTC) more authority. In

the next years, US officials will crack down hard on cryptocurrencies in order to curb the

ongoing influx of new coins. The result of the SEC's case against Ripple Labs, as well as its

efforts to regulate cryptocurrency exchanges, will determine whether cryptocurrencies may be

classified as securities.

7
Marian, O. “A conceptual framework for the regulation of cryptocurrencies”. U. Chi. L. Rev. Dialogue, 82, (2015):
53.

8
Hughes, S. D. “Cryptocurrency Regulations and Enforcement in the US.” W. St. UL Rev., 45 (2017): 1.
The Treasury of the United Kingdom9 stated its desire to regulate bitcoin enterprises. The United

Kingdom is now a European leader in the adoption of decentralized finance, with crypto

investors bringing in more than $170 billion in 2020 and 2021. Their regulatory framework

would be similar to the EU's Markets in Crypto-Assets (MiCA) framework.

Some politicians10 and economists worry that regulation would push trading activity towards less

nations or smother a prospective future financial asset class. Others believe that regulatory

measures will spur activity by providing market participants with clarity. Behind this

disagreement is a debate on the morality of either result. Some think that governments should

foster the expansion of the cryptocurrency business inside their own countries, whereas others

think that cryptocurrencies should be managed through severe regulation, if not outright

prohibitions. Digital assets generally represent an economic risk since their value fluctuates

owing to a variety of reasons such as international politics and economics. However, in the hands

of evil individuals, this might have disastrous repercussions. Terrorist funding, selling and

buying illegal substances, ordering killings, evading taxes, laundering money, and other unlawful

actions are all facilitated by a worldwide decentralized currency.

New phases11 of crypto regulation are regarded as critical steps towards the growth of a

cryptocurrency economy. New rules have the potential to introduce Bitcoin, stablecoins, other

cryptocurrencies, and NFTs into mainstream markets while also providing digital assets with

9
Huang, S. S. “Crypto assets regulation in the UK: an assessment of the regulatory effectiveness and
consistency.” Journal of Financial Regulation and Compliance (2021).

10
Schaupp, L. C., & Festa, M. “Cryptocurrency adoption and the road to regulation.” In Proceedings of the 19th
Annual International Conference on Digital Government Research: Governance in the Data Age (pp. 1-9) 2018.

11
Náñez Alonso, S. L., Jorge-Vázquez, J., Echarte Fernández, M. Á., & Reier Forradellas, R. F. “Cryptocurrency
mining from an economic and environmental perspective.” Analysis of the most and least sustainable
countries. Energies, 14(14) (2021): 4254.
legitimacy and increased security. Some members of the crypto community are still concerned

that regulation would stifle innovation and progress, while others see regulation as necessary to

combat frauds, money laundering, and other forms of cybercrime.

Cryptocurrency’s Impact on global world

Cryptocurrency12 is a new emerging technology that is changing the way individuals conduct

monetary transactions. As described below, cryptocurrency has had an impact on global society

in both positive and bad ways.

1. The growing use of cryptocurrency is economically integrating the world's civilization.

The globe is currently split into numerous currencies. Crypto avoids this split and is

quickly becoming a popular method of payment.

2. Cryptocurrencies erode the governmental ability to issue currency. As a result, economic

policy is rendered ineffectual, and the tie both citizen and government is weakened.

3. Crypto transactions are less expensive and speedier. As a result, capital becomes more

mobile/volatile, posing a danger to macroeconomic stability and, as a result, societal

implications.

4. Bitcoin has developed as a new asset class (alternative of gold). However, fluctuations in

bitcoin value have produced both kings and beggars.

5. Terrorist organization and drug cartels utilize cryptocurrency to carry contraband, which

has a detrimental influence on society as a whole. Anonymity in bitcoin has the potential

to enhance societal criminality.

12
Khedr, A. M., Arif, I., El‐Bannany, M., Alhashmi, S. M., & Sreedharan, M. “Cryptocurrency price prediction
using traditional statistical and machine‐learning techniques: A survey.” Intelligent Systems in Accounting, Finance
and Management, 28(1) (2021): 3-34.
 6. People that are technologically illiterate are falling behind as crypto use grows. As a

result, inequality may grow disproportionately.

Cryptocurrency’s Craze and Crash period

Crypto craze13 is a cryptocurrency trading platform for investors hoping to profit from the

booming cryptocurrency industry. The cryptocurrency platform is a trading programme that

allows for user-friendly and customizable trading. The mania and crash cycle is distinguished by

consecutive periods of economic growth and catastrophe. Three factors combine to create the

mania and crash cycle. They are both supply and demand, the availability of financial capital,

and future expectations. The interplay of these three elements causes each phase of the cycle.

During the boom period14, the driving factor is rising consumer demand. Families are more

enthusiastic about the prospects, so they buy more now. They are optimistic about their job

prospects and the value of their houses and investments. Because of increasing demand, firms

must expand supply, which they do by hiring new workers. Because capital is readily available,

both individuals and corporations may borrow at cheap interest rates. This increases demand,

producing a positive loop of wealth. When demand exceeds supply, the economy can overheated.

Inflation also occurs when there is too much money chasing too few things. When this occurs,

investors and companies attempt to outperform the market. They disregard the danger of

disastrous investments in order to profit.

2010: First jump of bitcoin

13
O'Rourke, M. “The Cryptocurrency Craze.” Risk Management, 65(2) (2018): 3-4.

14
Feinstein, Brian D., and Kevin Werbach. "The impact of cryptocurrency regulation on trading markets." Journal
of Financial Regulation 7, no. 1 (2021): 48-99.
In the summertime of 2010, Bitcoin had its first "huge" spike. The price had climbed from a half

of a cent in the spring to $0.09 by July. With the exception of a tiny number of IT specialists and

financial aficionados, very few people were knowledgeable enough even with bitcoin to buy it.

By October of that year, the price had fallen to roughly $0.10.

2011: Bitcoin surpasses the $1 mark

In April 2011, Bitcoin reached the $1 barrier, initiating its first smaller version run. By

November 2011, the price has fallen back to $2.Bitcoin Breaks $100, Then $1,000 then Falls in

2013 Bitcoin started 2013 at roughly $13.28. It soared to the $30 level in the first quarter of the

year before accelerating dramatically in the last week of March. Bitcoin has reached $100 on

April 1. By November 2013, bitcoin had over $1,000, before plummeting to roughly $530 by

December.

2014 to 2016: Bitcoin Stalls

Despite the volatility, Nelson Merchan, CEO of blockchain events provider Light Node Media,

was persuaded to investigate cryptocurrency. Bitcoin's price remained stable and would not reach

$1,000 until 2017.

2017: Bitcoin surpasses $1,000.

Thousands of altcoins were created as foreign politicians, governments, mathematicians,

economists, technology professionals, and financial experts debated cryptocurrency regulation

and mainstream adoption. During this time, Bitcoin's price went sideways, with a few little
increases. The greatest peak was roughly $17,527 in January 2018. In December 2018, the

lowest drop was roughly $3,236.

The Coronavirus15 Pandemic of 2020

When the coronavirus outbreak slowed the economy and raised concerns about inflationary

pressures on the US dollar, Bitcoin’s price began to accelerate its upward trend. Bitcoin's price

had climbed by more than 300% since January by December 2020. The year finished with a

price of around $29,374 - the highest ever.

2021 to 2022

Bitcoin 16doubled in worth in 2021, but fell precipitously in January 2022, erasing off nearly all

of the prior year's profits. Within the first year of 2021, Bitcoin achieved another all high of

about $64,000, only to fall below $30,000 by the summer. Bitcoin peaked at roughly $68,000 in

November, but had dropped below $35,000 by January 2022.Bitcoin is a very volatile currency.

It has a tendency to rise and decrease significantly on a daily basis. The fall of FTX, one of the

world's biggest crypto exchanges, sparked the November 2022 plunge. The minimum cost of

Bitcoin in 2022, according to a technical study of Bitcoin prices, will be $17,391.24. The Bitcoin

price might reach a high of $18,726.46. The predicted average trading price is $18,225.75. After

analysis in this December 2022, the least trading cost might be $17,391.24, while the maximum

could be $18,726.46. Another major factor in the bust period is diminishing future expectations.

When the stock market corrects or falls, investors and consumers get concerned. Stocks are sold
15
Mnif, E., Jarboui, A., & Mouakhar, K. “How the cryptocurrency market has performed during COVID 19? A
multifractal analysis.” Finance research letters, 36,2020: 101647.

16
Kim, Y. B., Kim, J. G., Kim, W., Im, J. H., Kim, T. H., Kang, S. J., & Kim, C. H. “Predicting fluctuations in
cryptocurrency transactions based on user comments and replies.” PloS one, 11(8), 2016: e0161197
by investors. They purchase safe-haven investments that have historically not lost value, such as

bonds, gold, and the US currency. As businesses lay off employees, customers lose their

employment and stop purchasing anything other than basics. This results in a downward spiral

and a recession.

Reasons for cryptocurrency craze and crash

However, there were so many reasons behind the craze of cryptocurrency; some of them are the

ups and downs in its increasing trend17 .

Adoption by institutions

Cryptocurrencies, such as Bitcoin, have grown in popularity as a protected commodity in the

context of market volatility and inflation. People are also storing less cash and remaining

covered against market volatility due to the current cultural and economic climate.

Public access

Cryptocurrency is a sort of virtual cash that can be used as both a store of value and a method of

exchange. Even though the public at large is reluctant to use it for activities, many people want

to switch their cash into bitcoin because they believe it is a preferable value store and inflation

hedge due to its deflationary nature.

Inflation

17
Taskinsoy, J. “The Famous New Bubbles of the 21st Century: Cases of Irrational Exuberance.” Available at SSRN
3845422 (2021).
Another factor driving the increase in bitcoin is the rising value of the US dollar. While inflation

is now at a reasonable two percent per year, continued stimulus expenditure is poised to

significantly increase inflation and weaken the dollar's purchasing power.

Advantages for retailers and customers

Cryptocurrencies are a popular retail option, thanks to peer-to-peer payments and safe

transactions. Despite the price volatility, leading retailers are accepting Bitcoin and Altcoins

payments due to the transactional safety in play. With customers soon having access to

innovative crypto-related services, adoption is only going to grow.

There are some threats 18have pushed Bitcoin’s price down.

1. In November 2022, cryptocurrency exchange FTX was in trouble when its opponent

Binance withdrew out of a contract to purchase the firm.

2. Celsius Network, a large US bitcoin lending firm, stopped withdrawals and transfers in

June 2022, claiming "extreme" conditions.

3. Russia was reported to prohibit cryptocurrency businesses in early 2022. However, troops

invaded of Ukraine, there had been calls for cryptocurrency exchanges to prohibit

Russian transactions.

Predications: Cryptocurrency Crash or an Exciting boom?

18
Tan, Z., Huang, Y., & Xiao, B. “Value at risk and returns of cryptocurrencies before and after the crash: long-run
relations and fractional cointegration.” Research in International Business and Finance, 56, 2021: 101347.
 19
In 2022, cryptocurrency values may plummet much more. They soared to a record high of

about $69,000 in November, but are presently around $50,000, down nearly 30% from their

peak. Some predicts that Bitcoin will fall below $10,000 by 2022, wiping out the majority of its

gains over the last year and a half. Others do not anticipate a crash in 2022, other analysts; feel

the Fed's (quantitative tapering) is the most significant risk factor. He believes it has been

determined and is most likely priced in. According to market analysts anticipate that Bitcoin will

reach $100,000 by the end of 2023, while some believe it will reach the milestone in the first

quarter of 2022. Others predict that Bitcoin will not exceed USD $70,000 by the end of 2022.

Bitcoin has acted like a vulnerability asset, according to researchers, and they expect it will

accelerate stock market behaviour. If the stock market rises in 2022, Bitcoin will almost certainly

outperform. However, if the stock exchange has a bad year, Bitcoin is likely to underperform.

Conclusion

19
Borri, Nicola, and Kirill Shakhnov. "Regulation spillovers across cryptocurrency markets." Finance Research
Letters 36 (2020): 101333.
We analyze that the current situation of crashing value of bitcoin corresponds to cryptocurrency

investors' need for greater liquidity in fiat currencies. Such drops in value might also arise from a

general cryptocurrency investor reacting to a conspicuous subgroup of bitcoin investors selling.

Since reaching an all-time high late last year, Bitcoin and several other cryptocurrencies have

started plummeting. Bitcoin has dropped more than two-thirds of its worth since peaking at over

$69,000 in November of last year and now trading rate is $16,524. In November 2022, the

average BTC rate is expected to be $17,524.76. In December 2022, the least trading cost could

be $17,391.24, while the highest could be $18,726.46. Based on recent year's Bitcoin pricing, it

is estimated that the minimum price of Bitcoin in 2023 will be roughly $25,064.52. The most

likely BTC price is about $30,466.65. In 2023, the average market price might be $25,975.81.

Bibliography
Daskalakis, N., & Georgitseas, P. “An introduction to cryptocurrencies: the crypto market

ecosystem.” Routledge. (2020).

Dniprov, O., Chyzhmar, Y., Fomenko, A., Shablystyi, V., & Sydorov, O. “Legal status of

cryptocurrency as electronic money.” Journal of Legal, Ethical and Regulatory Issues, 22

(2019):1-6

Fang, F., Ventre, C., Basios, M., Kanthan, L., Martinez-Rego, D., Wu, F., & Li, L.

“Cryptocurrency trading: a comprehensive survey.” Financial Innovation, 8(1) (2022): 1-59

Huang, S. S. “Crypto assets regulation in the UK: an assessment of the regulatory effectiveness

and consistency.” Journal of Financial Regulation and Compliance. (2021).

Hughes, S. D. “Cryptocurrency Regulations and Enforcement in the US.” W. St. UL Rev., 45(1)

(2017): 1.

Khedr, A. M., Arif, I., El‐Bannany, M., Alhashmi, S. M., & Sreedharan, M. “Cryptocurrency

price prediction using traditional statistical and machine ‐learning techniques: A

survey.” Intelligent Systems in Accounting, Finance and Management, 28(1) (2021): 3-34.

Borri, Nicola, and Kirill Shakhnov. "Regulation spillovers across cryptocurrency

markets." Finance Research Letters 36 (2020): 101333.

Kim, Y. B., Kim, J. G., Kim, W., Im, J. H., Kim, T. H., Kang, S. J., & Kim, C. H. “Predicting

fluctuations in cryptocurrency transactions based on user comments and replies.” PloS

one, 11(8), 2016: e0161197.

Lewis, A. “The basics of bitcoins and blockchains: an introduction to cryptocurrencies and the

technology that powers them.” Mango Media Inc. (2018).

Marian, O. “A conceptual framework for the regulation of cryptocurrencies.” U. Chi. L. Rev.

Dialogue, 82(1) (2015): 53.

Mnif, E., Jarboui, A., & Mouakhar, K. “How the cryptocurrency market has performed during

COVID 19? A multifractal analysis.” Finance research letters, 36, (2020): 101647.

Nabilou, H. “How to regulate bitcoin? Decentralized regulation for a decentralized

cryptocurrency.” International Journal of Law and Information Technology, 27(3) (2019): 266-

291.

Náñez Alonso, S. L., Jorge-Vázquez, J., Echarte Fernández, M. Á., & Reier Forradellas, R. F.

“Cryptocurrency mining from an economic and environmental perspective.” Analysis of the

most and least sustainable countries. Energies, 14(14) (2021): 4254.

O'Rourke, M. “The Cryptocurrency Craze.” Risk Management, 65(2) (2018): 3-4.

Schaupp, L. C., & Festa, M. “Cryptocurrency adoption and the road to regulation.”

In Proceedings of the 19th Annual International Conference on Digital Government Research:

Governance in the Data Age (pp. 1-9). 2018.

Tan, Z., Huang, Y., & Xiao, B. “Value at risk and returns of cryptocurrencies before and after

the crash: long-run relations and fractional cointegration.” Research in International Business

and Finance, 56, 101347 (2021).

Feinstein, Brian D., and Kevin Werbach. "The impact of cryptocurrency regulation on trading

markets." Journal of Financial Regulation 7, no. 1 (2021): 48-99.

Taskinsoy, J. “The Famous New Bubbles of the 21st Century: Cases of Irrational

Exuberance.” Available at SSRN 3845422 (2021).

Vujičić, D., Jagodić, D., & Ranđić, S. (2018, March). “Blockchain technology, bitcoin, and

Ethereum: A brief overview.” In 17th international symposium infoteh-jahorina (infoteh) (pp. 1-

6). IEEE, 2018.