“Nothing about the crypto markets is incompatible with the securities law,” quoted Gary Gensler, Chairman SEC. Crypto assets made a global presence for more than a decade, but it’s only now that the government is taking up special efforts to regulate them and having it prioritized with respect to their country’s agenda. We could see how the cryptocurrency took a horse ride and nourished itself from a niche product to a mainstream investment and hedges against weak currencies, and potential payment instruments.
Where The World Regulates Cryptocurrency
Every country runs on its own terms and regulations and the same is applicable to this speculative yet demanding crypto assets. Since it will not be possible to discuss the regulations for all the countries but we have tried our best to give an overview via a map in the exhibit below which shall give a good idea about the global bloc-wide framework of crypto regulations. We would be taking up a few countries regulations in detail like U.S., U.K., Australia, China, Japan, and India. While few jurisdictions have outlawed crypto outright, while many are planning to bring cryptocurrency exchanges, also known as crypto or virtual asset service providers (CASPs/VASPs) that shall function under regulatory oversight.
Although controversies are there about cryptos and have been in discussion with c-suite executives. The difficulty for those seeking greater regulation within the industry is that many exchanges may not be fully based in one location. Last year, the UK’s Financial Conduct Authority (FCA) commented about the biggest exchange Binance that it was incapable of effectively supervising due to a lack of transparency. Also, Coinbase, calls itself, “a decentralized company” since it started trading on Nasdaq in April 2021. Few countries consider Bitcoin to be an official legal tender while few take it as an outright ban on cryptocurrency. El Salvador which does not have its own currency and instead relies on the U.S. embraces Bitcoin and declared it as an official currency in September of 2021. The country also taxed and regulated cryptocurrency.
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Below is an exhibit showing how cryptocurrency is being regulated in the world. The countries considering crypto as a legal tender or not is a nutshell here.
Now let’s discuss briefly in regard to a few countries which embrace crypto assets.
United States
A new framework was announced by the U.S. in 2022 which opened the doors for new regulations. This directive handed power to existing market regulators such as to SEC and CFTC. The SEC move against Ripple was widely publicized in 2020 which alleged that it raised more than $1.3 billion by selling its native token, XRP, in unregistered securities transactions. SEC is also trying its hand at Coinbase (COIN) and Binance over their crypto products. The outcome of the SEC’s suit against Ripple Labs, and its efforts for regulating crypto exchanges, shall be determining whether cryptocurrencies can be classed as securities.
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United Kingdom
While there are no cryptocurrency-specific laws in the U.K., Crypto derivatives trading is banned here. There are cryptocurrency-specific reporting requirements relating to knowing your client’s KYC, AML, and CFT standards. The investors do pay the capital gains tax on crypto trading profits in the U.K. As of 30 August 2022, crypto exchange and custodian wallet providers are required to comply with certain specified obligations, like to notify OFSI if they have any reasonable suspicion of any financial offense. In October 2022, the lower house of the British Parliament recognized crypto assets as a regulated financial instrument.
China
China was the first economy to issue its national currency on the blockchain in early 2021. It took an extreme approach to the regulations of cryptocurrency by issuing an absolute ban on Bitcoin in May 2021. And in September 2021, cryptocurrencies were banned outright. However, China worked to develop the digital yuan (e-CNY) and in August 2022, it officially rolled out its central bank digital currency (CBDC) pilot test program.
India
India is in a perplexing situation whereby it is neither legalizing nor penalizing its use of crypto assets and NFT’s. The bill currently prohibits all private cryptocurrencies in India, but it has yet to be voted on for its implementation. Currently, there is a 30% tax levied on all crypto investments and a 1% tax deduction at source (TDS). Overall, India continues to be in a dilemma on whether to ban crypto outright or force it into regulation. Current regulations give a hazy picture to Indian investors.
Japan
Japan embraces cryptocurrencies as legal property, but the exchanges must be registered with the Financial Services Agency (FSA) and comply with AML/CFT regulations. Japan established the Japanese Virtual Currency Exchange Association (JVCEA) in 2020, making the crypto exchange members. In September 2022, the government announced that it would float remittance rules as early as May 2023 to stop hackers to launder money from cryptocurrency exchanges.
Canada
Canada became the first country to approve a Bitcoin exchange-traded fund (ETF) although it does not consider crypto as a legal tender, with several of them now trading on the Toronto Stock Exchange. As for crypto trading platforms, the Canadian government requires that crypto trading platforms and dealers in the country register with the regulators. Canada classifies all crypto firms as money service businesses (MSBs) and requires that they register themselves with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
Australia
The crypto exchanges are free to operate in the country but registration is compulsory with the Australian Transaction Reports and Analysis Centre (AUSTRAC) meeting specific AML/CTF obligations. Australia classifies cryptocurrencies as legal property, which makes them taxable for capital gains. In 2019, the Australian government announced a few regulatory obligations for initial coin offerings (ICOs) and banned exchanges offering “privacy coins,” which are cryptocurrencies that preserve anonymity by obscuring the flow of money across their networks.
Therefore, we have mixed views and outlooks in regard to different countries in view of the crypto regulations and their implementation. Many changes are indeed welcome for the transparency of the system and better guidance of the investors in view of the virtual currency to decide whether it’s a boon or a trap for them.
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[To share your insights with us, please write to sghosh@martechseries.com]
