The Future of Crypto Regulation

Blockchain

Cryptocurrencies and the technology behind it can be realistically considered to be one of the most driven advances in the financial sector. Not only because of the nature of the assets but the entire working idea behind it, the transactions and the virtual lack of regulation surrounding digital currencies.

Fast forward to say a decade or two, money will be virtual globally. Meaning walking around with actual cash will be a rare occurrence. Digital currencies have skipped that hurdle and are completely encased in a system that is complicated for most people to understand.

Moreover, the blockchain system is a complete opposite of the traditional financial system around the world which are already regulated. It doesn’t mean that cryptocurrencies are a mystery. It is gaining more knowledge and assimilation worldwide. So with higher popularity, comes the need for regulation.

Crypto has seen its fair share of multiple scams and fraud incidences. Different countries have different stands on cryptocurrencies. Let us have a look at a few economies around the world and analyse the regulations they have put in place.

1.China

China was once the biggest cryptocurrency market worldwide and used to dominate Bitcoin trading. As of last year, their stand on cryptocurrency trading became harsh and they banned ICOs. The reason behind this move was the volatile Bitcoin prices. In 2017, Bitcoin soared to levels of $20,000, raising the interests of the US, South Korea and Japan. In 2018, they dropped to lows of $7,000.

China supports the underlying blockchain technology but states that the use of the technology has raised significant concerns especially because the trades are unregulated and have been used for fraudulent and questionable purposes before. In August 2018, five different Chinese government bodies; People’s Bank of China, Banking Regulatory Commission, State Administration for Market Regulation, Central Cyberspace Affairs Commission and Ministry of Public Security issued a warning regarding the use of cryptocurrencies and ICOs for risky illegal use.

The Chinese government wants to protect its financial stability and regards the unregulated use of cryptocurrencies and the unlimited trading of the same as a threat to its economy. Crypto mining is not banned however, and individual investors have not been badly affected by the current bans.

2.U.S

To begin with, even the term cryptocurrencies in the U.S is subject to different definitions in different jurisdictions. The Financial Crimes Enforcement Network only recently acknowledged crypto trading as some sort of currency which they term as ‘money transmitters’ and tokens as ‘other value that substitutes for currency’. The IRS has issued a tax guidance and legally recognizes cryptocurrencies as property.

The SEC (Securities and Exchanges Commission) considers cryptocurrencies as securities and earlier this year were looking forward to setting up comprehensive securities laws that would govern digital assets and the transaction of the same.

The Commodities Futures Trading Commission (CFTC) approach is that it allows cryptocurrencies to trade publicly and describes Bitcoin as a commodity. As of two days ago, American Cryptocurrency enthusiasts are awaiting the first ever Bitcoin Exchange Traded Fund (ETF) from the SEC. ETFs trade like stocks by tracking groups of assets or indices. If the ETF goes through, it may auger well for the future of bitcoin and other cryptocurrencies at large.

3.U.K

Cryptocurrencies in the U.K are not really legally defined as legal tenders but the trade of cryptocurrencies have specific registration requirements. Cryptocurrencies in the U.K are required to register with the Financial Conduct Authority (FCA) and has set up trading guidance that ensures that entities engaged in cryptocurrencies which fall under pre-existing financial regulations for futures and options and other derivatives require authorization.

The FCA is working closely with the Bank of England as recommended by UK’s Treasury Committee to establish well worked out framework around cryptocurrencies and ICOs so that consumers can be protected seeing that cryptocurrencies are under limited FCA jurisdiction.

4.Australia

Australia was among the first countries to institute cryptocurrency regulations. In fact, it was the second after Japan to declare cryptocurrencies and Bitcoin as legal tender in 2017.

In 2018, on the sole motivation of consumer protection, Australia’s Financial Intelligence Agency (AUTRAC), laid down actionable guidelines to be flowed by any ICOs under anti-money laundering and counter-terrorism laws.

5.South Korea

The Asian country has had a confusing stand on cryptocurrencies altogether. In September of 2017, there were rumours of blanket ban on all ICOs, which were consequently dismissed in January 2018. The ban did not happen and it seems that South Korea has had a change of attitude towards crypto.

This came with harsh regulations;

  • Banning anonymous trading
  • Substantial Taxation of exchanges
  • Forbidding minors and government officials from trading
  • Banned local financial institutions from hosting trades of bitcoin futures

6.Japan

Japan is the first country to regulate bitcoins and cryptocurrency trading overall. However, as time has gone by, their grip has become tighter and tougher. In recent months, investors have lost sums of up to 7 billion Yen.

A recent hacking scheme led to the loss of approximately $61 million stolen from Osaka based trader Zaif being operated by Tech Bureau Corp. this is not to mention what happened to Coincheck, the world’s leading crypto exchange in January.

Revision of the existing regulations require more frequent audits and taxation of the exchanges as crypto is treated as an income for the business.

7.Canada

Canada has not been very quick to jump on the cryptocurrency bandwagon but has undoubtedly become one of the more favourable countries to trade crypto. Their government has been working on a regulatory document but it will be revealed in early 2019. As such, crypto is not considered a legal tender but trading is very much allowed in the state.

There are high hopes that the regulations will be favourable as compared to the initial imposed rules that had been proposed in June 2018.

8.India

The Reserve Bank of India banned Indian banks from serving Bitcoins and cryptocurrency exchanges. India used to issue subliminal threats to investors and entities and businesses as well through official statements regularly, so maybe the ban was not a complete surprise.

The most telling threat came worded like this;

‘The government does not recognize cryptocurrencies as legal tender or coin. As such it will take all measures necessary to eliminate the use of these crypto assets in financing illegitimate activities.’

I may point out that the stand is completely unreasonable and unjustified. This leaves the question as to the future of cryptocurrencies in India.

Conclusion

Matter of fact, crypto regulations are only just beginning to unravel. On the one hand, it is a prerequisite since the idea is to make sure people have faith in the digital assets trading ground. This also means that it will take a long time to come up with highly effective legal framework to regulate crypto since the technology behind it is what runs the transactions altogether, eliminating the need for a legal intermediary.

Countries inherently look to preserve their financial stability and functional economies and may adapt crypto regulation at different speeds depending on their technological abilities. My take is that the scrutiny of crypto as a whole is a real playing factor before regulations can be set up.

 

 

 

 

 

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