The last couple of years have witnessed explosive growth in the mainstream acceptance of cryptocurrencies as aggregate global digital asset capitalization surged past $3 trillion in market capitalization amid a flood of institutional demand and expanded use cases.
Digital assets like bitcoin (BTC), ether (ETH), and several other altcoins have come a long way, gradually transitioning from speculative investments to crypto portfolio stablemates. As cryptocurrencies continue cementing themselves as potential disruptors of the global financial system, lawmakers and governments worldwide are taking a deeper look at better regulating this growing sector.
While regulating cryptocurrencies may have positive long-term impacts, governments worldwide, to date, remain divided on how to control this growing asset class. Since there is no central authority, each government or regulator follows a different approach in regulating bitcoin (BTC) and other cryptocurrencies.
Some countries like El Salvador have approved bitcoin (BTC) as a legal tender, and others like China have already implemented stringent regulations restricting cryptocurrencies and service providers. At the same time, countries like India and Bangladesh are still figuring out the best way to regulate digital tokens.
We reached out to Request CEO & Co-founder Christophe Lassuyt, who said that “major financial hubs like Singapore have clear licensing regimes for crypto companies. This allows crypto companies to operate with the same legitimacy as traditional financial institutions. Regulatory acceptance gives institutional investors and large multinational businesses the confidence to transact in crypto.”
That said, the crypto ecosystem offers a diverse range of products like DeFi (decentralized finance) and IEOs (initial exchange offerings), which make it difficult for regulators to build a common framework. Besides, taxation and income-based laws also vary by country and state, adding to the challenge.
Between China’s blanket ban on cryptocurrencies, and the US SEC indicating that regulations for the greater good of the community wouldn’t be as restrictive relative to China, it can be rightly expected that new rules and compliance guidelines will arrive shortly.
With this reality in mind, here’s a quick rundown of how the current regulatory scenario for cryptocurrencies looks like in some of the most prominent nations and how they may potentially shape up in the coming years.
In the US, cryptocurrencies have attracted the attention of both Federal and state governments. Federal agencies like the Securities & Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Federal Trade Commission (FTC), the Department of the Treasury, Internal Revenue Service (IRS), Financial Crimes Enforcement Network (FinCEN), and the Office of the Comptroller of Currencies (OCC), are working in tandem to build a robust regulatory policy for cryptocurrencies, especially stablecoins.
While Federal Reserve Chair Jerome Powell clarified that the US has no intention to enforce a China-like ban on cryptocurrencies, several state governments have already passed laws covering cryptocurrencies and blockchain technology.
For now, bitcoin (BTC) and ether (ETH) are categorized as ‘commodities’ and taxed as ‘property’ by the IRS. Likewise, crypto exchanges and other related services are required to file licensing with the US FinCEN as money service businesses while complying with AML, KYC, and CTR guidelines.
Speaking on the matter was also Zachary Figueroa, Counsel at bitFlyer Group, who noted:
“There seems to be a collective mind to push for a single regulatory body for the crypto industry. Adoption has effectively reached a boiling point which is sending regulators into a proverbial feeding frenzy to grab a piece of this bull market that’s showing no signs of stopping. We may see an act of Congress to either authorize or create a singular oversight to police the industry, we may even see more states creating state crypto banks, and more taxation of crypto holdings. Many have called for this over the years but it’s possible that the industry has hit a tipping point in adoption that Congress will be required to step in. In 2022, expect more regulation of the crypto industry.”
In Canada, all such crypto exchanges must register with the Financial Transactions and Reports Analysis Centre of Canada (Fintrac) and adhere to the compliance guidelines. Latin American regions like El Salvador have already accepted bitcoin as a legal tender. Several neighboring areas like Brazil, Peru, Colombia, Mexico, Panama, and others are implementing taxation and compliance guidelines for digital assets and service providers.
Post-Brexit, the groundwork for developing and implementing crypto-specific policies has picked up the pace. Back in 2020, the UK government confirmed that all types of digital assets would be classified as ‘property,’ but no specific laws and guidelines have been announced thus far.
However, the Financial Conduct Authority (FCA) and the Bank of England have started taking a closer look at service providers. All crypto exchanges operating in the UK must register with the FCA and agree not to provide crypto derivatives trading services. The UK government is tightening its regulatory policies, and platforms that have already run afoul of its policies like Binance have been prohibited from offering services.
Meanwhile, cryptocurrencies are considered legal throughout the European Union (EU), although individual governments may elect to impose their own oversight on exchanges. Taxation on cryptocurrencies also varies by country, ranging from 0% to 50%. The EU has recently rolled out the latest anti-money laundering directives (AMLD5 and AMLD6) to tighten the existing KYC/CFT obligations and standard reporting requirements for money service businesses.
Considering the current pace of countries like Germany, Hungary, Poland, Austria, and several others are implementing taxation and regulation laws on cryptocurrencies and blockchain technology, well-researched crypto-specific guidelines and policies are soon likely to be adopted across the EU.
Most countries in the Asia-Pacific region are developing the required regulatory and compliance framework for governing digital assets. However, each country has its own opinion about cryptocurrencies and is working at its own pace.
For instance, the Chinese government has announced a complete ban on cryptocurrencies, mining, and other related activities. And with China’s ongoing problems with evolving technology, there is almost no chance that any new regulations designed to facilitate use will be introduced. On the other hand, nearby countries like Japan and South Korea have legalized bitcoin (BTC) and implemented taxation and compliance guidelines.
Meanwhile, countries like Bangladesh and India allow trading and holding cryptocurrencies, but no specific guidelines have been reached. India had earlier banned the use of cryptocurrencies in 2018 but changed its stance in 2020, and the country’s central bank is working to roll out a state-backed digital currency. Likewise, the Bangladesh government has approved trading cryptocurrencies but implemented a banking ban, meaning financial institutions cannot facilitate bitcoin transactions.
In Australia, the Reserve Bank of Australia (RBA) previously indicated that trading cryptocurrencies are legal. Then, in 2018, the Australian government announced that all crypto exchanges operating in Australia must register with the Australian Transaction Reports and Analysis Centre and implement KYC policies to comply with new anti-money laundering legislation.
Neighboring nation New Zealand is pretty lenient with cryptocurrencies. The government has clarified that non-banks don’t need any additional approval from the government for storing and transferring value as long as they are not involved in issuing physical circulating currencies.
Due to the geopolitical scenario, each country globally has a diverse range of regulation and compliance frameworks, some well-thought-out and some implemented hastily. Either way, the growing dominance of cryptocurrencies across the region will play a critical role in influencing local government and regulators’ decisions and policies in 2022 and the coming years.