Cryptocurrencies have been subject to stringent laws and prohibitions for a very long time. Several countries have even placed a ban on crypto trade.
In April 2018, the Reserve Bank of India released a circular, directing all commercial banks in the country to stop serving businesses related to cryptocurrencies. Following the direction, banks stopped dealing with businesses like crypto exchanges, which resulted in many companies simply withdrawing operations from the country. Surviving without basic banking facilities is almost impossible, especial for a business that is wholly based on digital transactions.
In a similar move, the central bank of Mexico has reportedly proposed new regulations of cryptocurrency exchanges that deal in fiat currencies. As per the crypto research firm Coin Center, the central bank will ban all the banks in the country from serving such exchanges. What this means that it is a ban, without being portrayed as one.
The cryptocurrency market is being subjected to severe regulations, in many countries. In fact, the countries which had held on regulating the Crypto space, are also taking a U-turn now. One of the main reasons for these restrictions is the growing number of frauds, scams, scandals, manipulations occurring on or by the exchanges. The most recent being the QuadrigaCX Exchange Scandal, which left over 110,000 people mourn over $190 million they lost due to the exchange’s fraudulent activities.
The recent proposal by the central bank of Mexico is directed towards protecting consumers, as it considers cryptocurrencies to be too complex for an average user, due to the mathematical and cryptographic processes on which they are based on. The regulations will prevent consumers’ direct contact with cryptocurrencies.
Mexico’s move is in line with many developing countries, though banning a crypto exchange from accessing basic banking facilities is too harsh. Cryptocurrencies and blockchain are one of the most booming sectors of the global economy. Though the market saw bearish trends through most of 2018, there were impactful activities in the market, which enabled the market to reach to grow by over 122%.
What Mexico should do is to put a formidable regulatory framework in place, which would prevent fraudulent activities on the exchanges. Banning them completely, though with the intention to protect consumers, is unfair towards them. For instance, the move by the Reserve Bank of India to ban “effusively” ban crypto exchanges was challenged in the Supreme Court, and the government has been directed to lay down regulations for space, instead of banning them.
The cryptocurrency market saw one of its worst phases in 2018, many currencies lost as much as 90% of their price value. The largest cryptocurrency Bitcoin also kept bleeding for six consecutive months, finally ending the streak in February this year. Ever since, the market has been at a surge, with Bitcoin leading the way.
Regulations are necessary for cryptocurrencies, to bring down the fringe elements in the crypto space, and also develop the much-needed trust among users, which has been somewhat fading due to instability and incidents like the QuadrigaCX Exchange Scandal. However, a complete ban will only create distress among users, as they would be forced to trade on exchanges out of the jurisdiction of the Mexican government.
This will also increase risk, as there are several unregulated cryptocurrency exchanges which have been manipulating transactional volume figures, to create traction. If the government and the central want the protect the users’ interest, banning exchanges is not the way. Even countries like India had to reconsider the ban on the crypto space, as the government realised the risk of leaving the space vulnerable to unregulated elements.