Bitcoin is, at present, almost entirely unregulated, save for a few vague guidelines from FinCEN. The only real regulations imposed upon the exchange markets are those of supply and demand, at least for now. This is not the case regarding the large conventional markets that we are more accustomed to dealing with. Muddled among the actual consumer sentiments are layers upon layers of structures, rules, and hidden costs that obscure the information that the market is trying to convey.
In many ways, financial regulation for the sake of stability is like damming a river. You may succeed in stopping the yearly flood that ruins a couple of houses, but you also ensure that when it does eventually flood, that the river will probably wipe out the whole village.
For lack of a better term, investors have been coddled into complacency with regards to their financial decisions. When was the last time that you checked the solvency of the bank where you leave your deposits? Do you even care about its financial health? Of course not, because your deposits are insured. Surely, you would never have to take a haircut like our friends in Cyprus did. That is, of course, until the flood.
When you deal in Bitcoin, you have to wear your big-boy pants. Nobody is there to help you if you make a poor decision. You have to do your own research and sink or swim on those terms. For instance, I keep a small but non-trivial amount of Bitcoins on the securities trading platform Havelock Investments. Recently I reached out to the owner, James, to inquire about his security precautions. He was gracious enough to describe his protocols (by the way, they are top-notch) and put my mind at ease. Conversely, I have no idea at all how imprudent that Bank of America may or may not be with my US dollars.
When the markets go bonkers, and Mt. Gox begins to lag, remember that people can only manipulate you if you let them. The panic selling that ensues after a DDOS attack has become less and less pronounced because Bitcoin owners are wising up. We don't need an uptick rule, we just need experience. We're learning all sorts of things that we never could with the Dow, the FTSE, or the Nikkei.
Take, for instance, the Bitcoin-only gambling game Satoshi Dice. It pays a monthly dividend in the form of 13% of net profits. In the world we are accustomed to living in, SD would be subject to all sorts of reporting and insider trading regulations. But in the Bitcoin world, the story is refreshingly simple. There are no rules to follow or break, no guarantee that insiders won't trade the stock for certain periods of time. Personally, I love it. It means that I can trust the current price a lot more assuming that people in-the-know have affected it already. I get more information from the price and can therefor make better decisions about whether I think it is a good time to buy or sell. As a bonus, the absence of regulatory cost burdens means higher profits and more money in my pocket.
If you follow the regulatory paper trail, you will often end up at the doorstep of large banks such as JP Morgan Chase or Goldman Sachs. This is because they have very effective lobby groups that know how to get legislation passed. Regulations are sold to the public as necessary for the protection of consumers and the ferreting out of fraud and money laundering. But you shouldn't be surprised to notice that the side effects of many bills serve to make large financial institutions larger and to raise the barriers to enter and thus compete.
So how can we show the world that Bitcoin doesn't need regulating? At the very least, don't ask for it. Don't blame anybody but yourself if you lose money trading, or your coins are stolen because you were careless. Become your own financial advocate. Do your research, learn about the companies you choose to trust with your money, and when the trading bots start flittering around the Mt. Gox order book, or somebody sells a big chunk of coins, go for a walk. You've got your big-boy pants on, and big boys don't panic.
If bitcoin works without regulation, then it will have the potential to invalidate many claims that "regulation is for your own protection," leaving the alternative explanation that regulation in general is little more than a blunt anti-competitive tool.