While it’s been over two and a half decades since crypto’s introduction to this world, policy and crypto regulations around such revolutionary innovation are still unclear. Despite the ideology behind crypto was to be a decentralized financial instrument with no involvement from authorities, no laws, no regulations and governments around the world staying away, the recent developments in the industry prompted the governments to interfere by cracking down on many businesses.
Amid a lot of confusion and misunderstanding, many crypto businesses, investors, and entrepreneurs, as well as consumers, are being negatively affected. Also, this kind of misinformation and dilemma hinders the mainstream adoption of cryptocurrency.
After a high number of investors lost their money from investment in crypto, many countries have accepted the need for a robust regulatory framework for digital assets like cryptocurrencies, stablecoins, and so on. In order to assess the feasibility and risk associated with digital assets, governments around the world order regulators to conduct research about crypto innovations before forming regulations.
Currently, the process of developing the regulatory framework is under way. However, there is a lot of skepticism and uncertainty buzzing around it, as a lot of people are raising questions about its fairness.
In this article, we will try to analyze the regulatory frameworks in various countries to understand their impact on crypto innovation and the digital asset ecosystem. We will also delve into the question of whether these regulations will be biased or not.
So, let’s begin.
Major Countries Where Regulatory Framework Is Under Process
Here’s a list of the top countries where the regulatory process is under development.
1. United States
The United States has made progress in crypto regulations by granting regulatory power to market regulators like the SEC and CFTC. The SEC has taken steps to regulate the sector, including suing Ripple for unregistered securities transactions. Exchanges like Coinbase and Binance have also faced scrutiny.
The Biden administration aims to address illegal cryptocurrency activity and explore the possibility of a central bank digital currency (CBDC). The U.S. takes a mixed approach to regulation, focusing on combating money laundering, scams, and cybercrime.
2. Canada
Canada was one of the first countries to adopt cryptocurrency regulations. Cryptocurrencies are treated as commodities, and entities dealing with them, like exchanges, must register with provincial securities regulators. Tax treatment of cryptocurrencies in Canada is similar to that of commodities.
Canada has implemented measures to prevent money laundering and terrorist financing through registration and compliance requirements. While comprehensive, certain aspects like stablecoins and NFTs are still not well-defined. However, Canada’s regulatory framework has positioned it as one of the most crypto-friendly countries in the world.
Canada boasts a flourishing network of Bitcoin-friendly ATMs, enabling residents to trade cryptocurrencies. Additionally, the nation delves into the potential introduction of a native CBDC. Overall, Canada’s regulatory approach towards cryptocurrencies combines investor protection, AML measures, and support for innovation in the digital economy.
3. Europe
Cryptocurrencies are considered legal across the European Union (EU), with crypto regulations varying among member states. The EU implemented anti-money laundering directives, requiring exchanges to conduct KYC and adhere to reporting requirements. Some member states require exchanges to register with their regulators, allowing operation across the EU.
The EU is actively exploring further regulations, including the Markets in Crypto-Assets Regulation (MICA), which aims to establish a regulatory framework for cryptoassets and enhance transparency and consumer protections. While MiCA brings regulatory certainty and consumer protections to the crypto market, it also aims to address environmental concerns associated with cryptocurrencies.
4. United Kingdom
The UK’s regulatory approach to crypto is evolving. The FCA oversees compliance with anti-money laundering and counter-terrorism legislation but awaits legislation to gain more regulatory powers. Once introduced, the FCA will regulate financial promotions related to crypto, treat them as high-risk investments, and criminalize non-compliance.
The FCA collaborates with the government on regulating stablecoins and the wider cryptoasset regime. Awareness campaigns and partnerships aim to prevent scams and raise awareness of crypto risks. However, there are no separate crypto regulations exists in the U.K.
5. India
There is uncertainty in India around crypto regulation. Cryptocurrencies are not banned but are not yet regulated in India. The Supreme Court struck down 2018’s circular by the Reserve Bank of India (RBI) that discouraged cryptocurrency dealings. The Supreme Court suggested that the RBI should regulate cryptocurrencies instead of banning them.
However, Indian companies are now required to disclose their cryptocurrency investments. The government has proposed a flat tax of 30% on crypto transfers and brought cryptocurrencies under the Prevention of Money Laundering Act (PMLA) to prevent money laundering. Crypto is neither legal tender nor illegal in India, creating a gray area.
Also Read: Demystifying Crypto Taxes in India: What You Need to Know
Can Government Really Regulate Cryptocurrency?
The question of whether governments can truly regulate this decentralized and global phenomenon is a complex and ongoing debate. While governments can enact regulations to monitor exchanges, combat illicit activities, and protect consumers, the decentralized nature of cryptocurrencies poses challenges.
The effectiveness of regulations depends on factors such as jurisdictional boundaries, technological advancements, and global cooperation. As the crypto landscape evolves, governments continue to grapple with striking a balance between regulation and fostering innovation in this rapidly evolving space.
Ways Government Can Crackdown On Cryptocurrency
- Regulatory Frameworks: Governments can establish clear regulations and legal frameworks specifically designed for cryptocurrencies, outlining guidelines and compliance requirements for businesses and individuals operating in the crypto space. Such crypto regulations can also apply to other digital assets, like NFTs.
- Know Your Customer (KYC) and Anti-Money Laundering (AML) Measures: Governments can enforce stricter KYC and AML regulations on cryptocurrency exchanges and service providers to ensure the verification of users’ identities and prevent illicit activities.
- Licensing and Registration: Governments can mandate cryptocurrency exchanges and businesses to obtain licenses or register with regulatory authorities, subjecting them to ongoing scrutiny and oversight.
- Taxation: Governments can impose taxes on cryptocurrency transactions and capital gains, treating them similarly to traditional financial assets. This helps generate revenue and discourages tax evasion.
- Enhanced Monitoring and Surveillance: Governments can invest in sophisticated monitoring and surveillance technologies to track and trace cryptocurrency transactions, making it harder for individuals engaged in illicit activities to remain anonymous.
- Encouraging Innovation and Responsible Use: Governments can support and encourage the development of blockchain technology and legitimate use cases for cryptocurrencies while simultaneously promoting responsible and legal behaviour in the crypto ecosystem.
Series of events that can affect the process of the regulatory framework
Crypto regulations are being shaped by ongoing global events. Here are some of these events:
SEC vs Ripple
The SEC vs. Ripple lawsuit determines if XRP is an unregistered security. The outcome could set a precedent for how cryptocurrencies are classified and regulated. If Ripple loses, it may lead to increased scrutiny and tighter regulations for other crypto projects. This case highlights the need for clarity in the regulatory framework and could shape the future of the industry.
Also Read: Pro XRP Lawyer Reveals Neglected Footnote In SEC Documents
SEC vs Coinbase
Coinbase’s legal battle with the U.S. Securities and Exchange Commission (SEC) has significant implications for crypto regulations. The court ordered the SEC to respond to Coinbase’s writ of mandamus, seeking clarification on regulatory treatment of digital assets. The lack of response and increased enforcement actions by the SEC have created uncertainty. This regulatory uncertainty led Citigroup to downgrade Coinbase shares, highlighting the need for clearer regulatory guidelines.
Coinbase, once given the green light to go public in 2021, is now facing legal scrutiny from the very same regulatory body, SEC that initially approved its public status. It’s like a high-stakes game of regulatory chess, where the rules seem to change at the drop of a hat.
SEC vs CFTC
The SEC and the Commodity Futures Trading Commission (CFTC) battle over regulatory jurisdiction for cryptocurrencies. Cryptocurrencies exhibit characteristics of both commodities and securities, making classification challenging. The outcome will determine which agency has regulatory authority and impacts compliance obligations for market participants. It affects how exchanges, trading platforms, and token issuers operate and the level of disclosure required for investors.
These ongoing events highlight the importance of regulatory clarity in the crypto industry. The outcomes will shape the regulatory landscape and determine the extent of oversight and requirements for cryptocurrencies and their market participants. Clarity is crucial for fostering innovation and investor confidence in the evolving digital asset market.
Ensuring Fairness in the Regulatory Framework: Will it be Partial?
Many crypto players and consumers believe that the process of forming crypto regulations is less likely to be fair as regulatory around the world are disappointed with this innovation and are not ready to accept it. Most governments and regulatory agencies are seeing it as speculation, which is posing a threat to their economic stability.
Here are some reasons that indicate that crypto regulations would be formed based on biased opinions.
1. The Strong Influence of Global Superpowers on Other Countries and Global Financial Regulators
As mentioned earlier, the actions of the U.S. government and its financial regulatory bodies have intensified their crackdown on crypto innovation, causing numerous businesses to relocate elsewhere. Due to the United States’ considerable sway over Europe and other nations, they are able to exert influence and encourage other countries to adopt similar measures to address speculative practices in the crypto industry.
Additionally, the United States holds significant power over global financial regulators, such as the International Monetary Fund (IMF), which is currently working on establishing a set of global rules for crypto regulations. Over the past few months, regulators have made extremely strong statements regarding the crypto space. This raises the concern that global regulations, intended to protect consumers, may inadvertently dampen speculative activities in the crypto market.
2. Prioritizing Own CBDC Project
Several countries, including China, India, and Japan, are in the process of developing their own central bank digital currencies (CBDCs) and conducting pilot tests. However, these countries are taking steps to impede the mainstream adoption of cryptocurrencies. Measures such as the ban on crypto in China and the imposition of heavy taxes in India are specifically targeted at undermining the crypto space and discouraging consumer participation. Ultimately, the establishment of a robust regulatory framework provides these countries with a valuable opportunity to assert authority over the crypto space and curb speculative practices.
How Ideal Crypto Regulations Look Like
Crypto users and businesses have specific preferences when it comes to regulatory frameworks governing the crypto industry. Here are some key aspects they desire:
- Clarity and Certainty
Users and businesses want clear and consistent crypto regulations that provide certainty about the legal and regulatory environment. Uncertainty can hinder innovation and deter businesses from entering the crypto space.
- Consumer Protection
Users want regulations that prioritize the protection of their interests and funds. They seek measures that ensure transparency, security, and accountability in crypto transactions and services, including robust measures against fraud, scams, and hacking.
- Regulatory Sandbox
Many users and businesses advocate for the establishment of regulatory sandboxes. These sandboxes allow innovative crypto projects to operate in a controlled environment, facilitating experimentation and the development of new technologies while ensuring compliance with regulatory requirements.
- Proportional Approach
There is a desire for regulations that strike a balance between oversight and fostering innovation. Users and businesses want regulations that recognize the unique characteristics of the crypto industry while addressing potential risks and maintaining market integrity.
- Global Consistency
Users and businesses in the crypto space would benefit from globally coordinated regulatory frameworks. Harmonized crypto regulations across jurisdictions can reduce fragmentation, promote international cooperation, and facilitate cross-border transactions and expansion.
- Compliance Support
Businesses seek regulatory frameworks that offer guidance and support for compliance efforts. Clear guidelines, standardized reporting requirements, and streamlined processes can help businesses navigate the complex regulatory landscape more effectively.
- Collaboration and Dialogue
Crypto users and businesses want regulators to engage in open dialogue and collaboration with industry stakeholders. The inclusion of their perspectives in the regulatory decision-making process can lead to more effective and balanced regulations.
Conclusion:
According to me, the simple answer to crypto regulation is:
“Crypto regulations should be more prone to protect consumers rather than killing innovation or suppressing the speculation of crypto.”
Indeed, there’s a lot of illicit activity going on inside the crypto space, as there is in the traditional financial system. Had we turned our heads away from the paper currency? No, right? Similarly, instead of suppressing revolutionary innovations, we need to focus more on fixing problems. Collaborative efforts from governments and crypto businesses can definitely create a reliable environment in the crypto space.
The crypto space is currently grappling with addressing wrongdoing. However, there are some robust crypto projects taking shape that have the potential to define the safety of consumers. For the sake of innovation, governments around the world need to give these projects a chance by forming flexible regulations.
