The crypto space is evolving rapidly. Such has been the growth of cryptocurrencies around the globe, even digital currency in India has become one of the major technological trends. The global regulations governing digital currencies are growing in tandem with their usage. Cryptocurrency assets have been in existence for more than a decade now and crypto assets have only become more widely recognized in the last few years as speculative investments, currency hedges, and possible payment methods. Previously, they were niche items looking for a specific use. But the growth in the market in 2023, has led to it as a mainstream currency.
The world of digital currency is always changing, and it can be challenging to stay current with the laws in many countries. It has become of utmost importance for any government to pay special attention to the cryptocurrency transactions and dealings going on in the country. This is because crypto is not just something we come across once in a while right now. It is well inside the financial system or framework of almost all major economies worldwide.
Understanding regulation is important for a well-informed journey in the fascinating world of cryptocurrencies or digital currencies. It is important whether you are a seasoned investor or just dipping your toes into the crypto world. Read the full blog to understand what the crypto regulations mean as we navigate the complexities, dissect the key developments, and shed light on the regulatory framework shaping the future of the crypto sphere.
Various governments have adopted varied approaches to regulate the asset class of cryptocurrencies as they have grown in importance in the global investing scene.
The digital dollar was made possible in the United States in 2022 when the Biden administration simplified regulations surrounding the use of cryptocurrencies.
Other nations have varied tax laws and classifications for cryptocurrencies.
The legal and procedural frameworks that governments establish to shape various aspects of digital assets are known as regulations for cryptocurrency. Regulating cryptocurrency can take many different forms: comprehensive guidelines aimed at assisting blockchain users; or complete prohibitions on the usage or trading of cryptocurrencies.
The International Monetary Fund (IMF) is a global institution that fosters trade between nations, lowers poverty, and advances the financial stability and global economic progress of 190 member countries. Recently they have gotten involved in digital currencies and have contributed to creating a safe space for useful innovation. That is why the IMF is calling for a global response that should be coordinated, consistent, and comprehensive to cover all aspects of the crypto ecosystem.
The United States' approach to regulating cryptocurrency has been inconsistent. Here cryptocurrency is not considered a legal tender. Whereas the crypto exchanges are legal with different crypto regulations vary by state.
State-level legal approaches to cryptocurrency are scarce, while federal cryptocurrency policy in the US is still evolving. Exchanges of cryptocurrencies are permitted in the US and are governed by the Bank Secrecy Act (BSA). In actuality, this means that companies that offer digital currency exchange services have to set up an AML/CFT program, register with FinCEN, keep the necessary documentation, and file reports with the government.
In the meantime, the US Securities and Exchange Commission (SEC) has stated that it views cryptocurrencies as securities and that digital wallets and exchanges must abide by all securities laws. In 2021, Congress discussed the regulations governing cryptocurrency service providers, with the infrastructure bill introduced by the Biden administration containing additional provisions.
The significant shifts in the country's leadership and cryptocurrency led to law changes in the United Kingdom. The UK has taken a methodical approach to regulating cryptocurrencies. Despite the lack of rules specifically on cryptocurrencies in the UK, exchanges still require registration by FCA, and cryptocurrencies are not regarded as legal money. According to a brief released by HMRC on the tax treatment of cryptocurrencies, their "taxability" varies depending on the parties and activities involved, and their "unique identity" prevents them from being compared to traditional investments or forms of payment. Capital gains tax does apply to cryptocurrency gains or losses, though.
The government declared that it will include stablecoins into UK regulatory frameworks when they are used as payment methods and establish stablecoins as an accepted payment method in the country. This will mostly be accomplished by adding payment systems and service providers that use stablecoins to the current electronic money and payments laws. Only stablecoins backed by fiat money will be covered by the framework.
Here, cryptocurrencies are not considered legal tender but the cryptocurrency exchanges are legal but they need to be registered by FinTRAC. Although they are not accepted as legal money in Canada, cryptocurrency can be used to make purchases online and at merchant locations. Canada has approached cryptocurrency regulation somewhat proactively, mostly through provincial securities legislation.
The British Columbia Securities Commission registered the first investment vehicle focused solely on cryptocurrencies in 2017, while Canada began bringing businesses dealing in virtual currencies under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) as early as 2014. The chief of Canada's central bank described cryptocurrencies as "technically" securities in January 2018, while the Canadian Securities Administrators (CSA) published a notice in August 2017 regarding the applicability of current securities laws to cryptocurrencies.
The Canadian Securities Administrators (CSA) released guidelines for cryptocurrency issuers that possess or manage cryptocurrency assets in 2021. The guidelines outlined mandatory disclosure requirements for cryptocurrency issuers regarding how they safeguard their assets from theft and loss, including the requirement to reveal pertinent risk factors. Likewise, additional PCMLTFA revisions in 2021 mandated cryptocurrency exchange registration with the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC).
Australia has been advanced in implementing rules about cryptocurrencies, and both exchanges and cryptocurrencies are legal there but the exchange must be registered with AUSTRAC. When the Australian government announced in 2017 that cryptocurrencies were legal, it made it clear that Bitcoin and other cryptocurrencies with similar features would be considered property and would be subject to capital gains tax (CGT). The controversial double taxation of cryptocurrencies under Australia's goods and services tax (GST) has been lifted; this shift in tax treatment reflects the government's progressive stance on the matter.
In May 2019, the Australian Securities and Investments Commission (ASIC) released new regulatory guidelines for initial coin offers (ICOs) and cryptocurrency trading. Similarly, privacy coins are a particular kind of anonymous cryptocurrency that regulators in Australia mandated numerous exchanges to delist in August 2020.
The government of Australia is taking steps to tighten its oversight of bitcoin exchanges. Australia declared in December 2021 that it will be implementing a new licensing structure designed exclusively for cryptocurrency exchanges, with 2022 set out for public input. The proposed framework would put customers in a safe and regulated environment to buy and sell cryptocurrency assets. It also puts Australia at the forefront of the worldwide movement to regulate Internet businesses.
The Japanese regulators are very clear about the governance of the crypto exchanges, anti-money laundering, KYC, and taxation policies. People can buy and sell cryptocurrency on exchanges that are approved by the regulators. The Japanese financial services agency regulates with the Japan Virtual Currency Exchange Association and Japan Security Token Offering Association for regulatory purposes.
The prime minister of Japan, Fumio Kishida, stated in his speeches on October 20, 2022, that the government has plans to digitize national identity cards. This entails the issuance of NFTs to local authorities through digital solutions.
To access the cryptocurrency, an entity needs to sign up with FSA, which is a process with strict cybersecurity and other AML requirements. Japanese laws have restricted commercials for speculative investments in the world of crypto. The law categorically mentions the forbidden actions, which require exchanges dealing in crypto assets to take precautions for user security and share information with other users regarding the techniques used for handling monetary and crypto assets.
The research is ongoing for the other digital assets, which are not limited to DeFi and other decentralized autonomous organizations.
Argentina is no exception to a global trend in cryptocurrency trading. The inflationary situation and currency devaluation have increased in the past few years, which has led millions of Argentinians to use digital wallets to trade cryptocurrencies. The use of cryptocurrency for hoarding or buying goods, which has been increasing over the years, makes it an attractive financial option.
On the other side, the Argentinian government has taken measures to discourage certain cryptocurrency uses, but they are not completely prohibited.
The regulations of cryptocurrency vary in different countries, and mentioning Argentina, there are no uniform criteria. According to different definitions and regulations, the government partially allows cryptocurrency and partially discourages it. Any outflow of funds through the foreign exchange markets requires prior approval from the Central Bank of Argentina.
Recently, in December, the cryptocurrency market witnessed a week of gains, and the highlight was the new Argentinian government endorsing Bitcoin as an official currency. They will use it for contracts, which is a sign of development.
The first country in the world to use the cryptocurrency Bitcoin as a legal tender. The regulation of the use of Bitcoin is developed by various regulatory bodies, which are issued by the legislative, executive, and financial systems of these bodies. The recognition of BTC as legal tender has been a state strategy to boost financial inclusion. In recent times, El Salvador’s long-planned Bitcoin bonds have inched closer to reality after receiving regulatory approval for an early 2024 issuance. The bonds will be offered on Bitfinex Securities, which is a regulated division of the crypto exchange Bitfinex.
The Volcano bond has just received regulatory approval from the Digital Assets Commission (CNAD), and they are anticipating the issue of the bond in the first quarter of 2024. The development is the second major Bitcoin-focused move in the past few weeks. Earlier, it has also run the Freedom VISA program for approximately 1,000 people annually who are investing at least $1 million in stablecoins like Bitcoin or Tether (USDT).
India is an innovation hub that is developing in every aspect and the same chain, cryptocurrency is yet not considered a medium of exchange but the government is taking a look at it, as this year in 2022 during the budget revelation that cryptocurrency will be taxable but not as a legal tender. This has hinted towards a sign of the government's eye on cryptocurrency but it will take time to be legalised. Regulations come every day in every domain and maybe the year 2024 will be a good year for cryptocurrency that might be used as a currency to buy and other benefits.
The regulatory focus on digital assets has increased dramatically over the past years, and it is paving the way for development. The growth in retail and institutional adoption resulted in the rapid rise of market capitalization and extreme volatility. It has been observed many times: a loss of consumer trust, fraud, scams, and much more. The risk to market integrity demonstrates the need for rapid changes in policies to ensure consumer protection. In the same vein, companies are highly focused on consumer protection as their top priority by providing them with high security, profits, low fees, and other benefits to help them earn additional income. Countries around the globe are researching, consulting, and defining how to execute it nicely in a uniform framework to make it work successfully in the future.
Cryptocurrency has existed since 2009, but governments around the globe are still working out the rules and regulations. Countries are progressing, but every nation is taking it slow to keep everyone safe from any fraudulent activities. Cryptocurrency is making space for the future, and assumptions say that it will be the future.
Author - Manmeet Kaur