Cryptocurrencies like Bitcoin don’t rely on any central authority or government for support; as an investment they can appreciate in value based on demand.
However, they’re also used in illegal ways – for instance the Silk Road marketplace on the dark web sold drugs and fake documents – and subject to regulatory oversight such as by CFTC and FinCEN regarding money laundering or terrorist financing concerns.
U.S.
Cryptocurrency has rapidly gained mainstream acceptance and its use is widely recognized, but not without risks. Over the years, governments have struggled to regulate this highly uncertain industry. While unwilling to prohibit cryptocurrency transactions for fear of hindering an important and growing sector, they’ve not given up policing illegal payments made using virtual currencies such as bitcoin and tracking down cybercriminals who use them in cybercrime activities.
Therefore, the U.S. has created a complex web of regulations at both federal and state levels, with legislators taking turns overseeing various parts of the market. FinCEN classifies digital assets as “value that substitutes for currency”, placing them under money transmitter laws and subjecting them to anti-money laundering reporting requirements and other reporting stipulations. The Commodity Futures Trading Commission (CFTC) recently implemented new regulations that permit Bitcoin futures trading on public derivative markets and is taking actions against unregistered exchanges. Meanwhile, the Securities and Exchange Commission (SEC) maintains that cryptocurrencies such as bitcoin should be subject to laws similar to stock trading laws.
Multiple states have attempted to craft their own regulatory frameworks, most notably New York with its BitLicense. While results have varied widely from these attempts, investors and companies alike generally welcome more regulation as it provides much-needed clarity. The Uniform Law Commission – an organization dedicated to streamlining state legislation – recently proposed the Virtual Currency Business Act that would outline which activities constitute money transmission services that require registration or licensing.
The SEC could become the regulator for stablecoins – privately issued cryptocurrencies with price pegs to traditional currencies – such as dollars or euros; applying securities laws to exchanges, ICOs and developers of crypto wallets alike; even asserting that crypto is itself a security subject to registration and reporting requirements for securities brokers and dealers.
Before regulation becomes more consistent, investors must prepare themselves for fluctuating prices and risks that vary across various markets. Thankfully, however, the Biden administration appears committed to taking a coordinated approach, with some promising signs showing more uniformity down the road.
Canada
Canadian is an emerging cryptocurrency hub and home to numerous blockchain startups; however, the country lacks an official regulatory framework for crypto assets. At present, most transactions involving cryptocurrencies fall under anti-money laundering regulations while Canadian tax law requires individuals and businesses to report gains/losses when filing taxes.
Due to this legal status, cryptocurrencies are not legal tender in Canada; however, this hasn’t stopped merchants from accepting them in their businesses – in Montreal alone there’s even the world’s first Bitcoin Embassy, dedicated to spreading awareness of this technology and informing citizens on its benefits.
As many merchants accept cryptocurrencies, it’s important to remember not to confuse them with actual currency. The Canada Revenue Agency doesn’t consider cryptocurrencies to be money for tax purposes and rather treats them as commodities; any gains or losses on purchases of cryptocurrencies will be taxed just like any other investment.
The Canada Revenue Agency’s approach has caused some confusion. Some individuals have reported seeing advertisements on social media from firms offering to purchase cryptocurrencies at an exorbitant price, only for them not actually to do so – likely operating unregistered exchanges and breaking securities regulations in Canada by operating such exchanges illegally. It is crucial that only registered exchanges be used when buying cryptocurrency.
Cryptocurrencies in Canada are not governed by a central bank but instead fall under the oversight of provincial securities regulators, who work collaboratively on creating an efficient framework to regulate them. One such agency, Ontario Securities Commission (OSC), granted exemptions to companies holding Initial Coin Offerings (ICOs), an increasingly popular form of crowdfunding through which developers sell cryptocurrencies in exchange for funding to launch projects.
OSC recently issued an advisory ruling that stated certain utility tokens could violate Canadian securities law and thus lead some companies to relocate operations outside the country. As the industry evolves further, it will be fascinating to observe how Canadian authorities respond.
Europe
Cryptocurrencies have quickly become an attractive means of purchasing goods and services both online and in some brick-and-mortar stores, yet as their popularity has grown so have concerns about their use. A number of countries are now considering or passing legislation to regulate them – it remains to be seen if these new regulations will help keep cryptos out of harmful hands or will hinder innovation within this exciting sector.
While Europe has taken a wait-and-see approach to digital currency regulation, the United Kingdom is taking bold steps forward with comprehensive standards that could serve as a model for other European nations. The Financial Conduct Authority (FCA) in Britain has integrated cryptocurrency regulations into existing securities trading and money laundering laws; its guidance includes requirements for cryptocurrency exchanges to register with and comply with anti-money laundering and countering the financing of terrorism reporting obligations; in addition, companies operating crypto exchanges must disclose risks they pose to investors as well as prohibitions on certain kinds of insider trading or market manipulation activity.
The EU is developing its inaugural pan-European cryptocurrency regulations dubbed MiCA (pronounced mee-kuh). This law will require all companies providing crypto users services within Europe to be approved by a national regulator before providing services, with those failing to meet new standards facing fines of up to 12.5% of annual turnover and sanctions of up to 12.5% of annual turnover for failing. MiCA will also place restrictions on stablecoins that need to be pegged back to euros as well as restrict daily transactions per user as well as provide clear and comprehensive disclosures to potential investors.
MiCA remains uncertain in how or whether it will address other industry-related concerns, such as energy use during bitcoin mining and concerns that digital currencies could be used to finance criminal activity. Regardless, its introduction is expected to influence other nations to follow its lead or develop their own regulations, creating what’s known as the “Brussels effect”, where sweeping EU laws on issues like data protection can quickly become global standards.
Asia
Asia, representing an immense portion of global cryptocurrency trade and value, has taken note of crypto‘s rapid ascent. While some governments have outright banned it, most regulate it to improve trading conditions while protecting both individuals and organizations.
Asia is home to many crypto-related companies and institutions, but their regulatory environments vary widely by country. Some nations like South Korea do not have an organized body overseeing cryptos; instead managing risks through ad hoc prohibitions; while Hong Kong and Singapore have established comprehensive frameworks that promote rather than prohibit it.
China took steps in 2021 to limit bitcoin mining by imposing an energy tax and banning equipment sales for mining rigs, while also placing restrictions on exchanges requiring them to comply with Anti-Money Laundering and Counterfinancing of Terrorism (AML/CFT) rules, leading to an exodus of miners and their funds into other crypto-friendly nations. As a result, China is considering creating its own central bank digital currency (CBDC), intended solely for use within its borders rather than as means of payment.
China’s mining industry may have experienced an unexpected reversal of fortunes, yet its ban has inspired other Asian countries to investigate how best to regulate cryptocurrency. Indonesia released an in-depth paper outlining a regulatory model focused on investor protection and market integrity as well as plans for licensing firms which must submit risk analyses to be overseen by a local financial authority.
Malaysia recently reconsidered its ban on initial coin offerings (ICOs) and pledged support for the industry by creating a regulatory body with high-standard token listings. Singapore, on the other hand, proposed requirements for VASPs that minimize risks such as security breaches and money laundering while simultaneously mandating regular reports back to them; additionally, additional requirements regarding lending/staking would protect investors even further.