Global Crypto Regulation Landscape
BSN LONG STORY SHORT SERIES #19
In this latest episode of BSN's Long Story Short Series, we focus on the regulatory aspect of cryptocurrencies. Crypto assets have grown in popularity in recent years. On the one hand, most central governments are apprehensive of cryptocurrencies because of their anonymity; on the other hand, numerous countries are attempting to embrace cryptocurrency to boost their economies.
Beyond the excitement around cryptocurrencies, we invited experts from around the world to explore differing policies on cryptocurrencies across the globe, as well as the underlying reasons. Today's excellent line-up of true experts includes Suleiman Barada (Head of UAB digital- Part of the Union of Arab Banks), Syren Johnstone (Executive Director, LLM Compliance & Regulation Programme, HKU), and Yifan He (CEO at Red Date Tech and Executive Director of BSN). Ben Yorke (Cointelegraph Research and Wootrade) acted as a moderator for the talk.
To begin with, please give a little background context on yourself?
Syren: He is an executive director, LLM Compliance & Regulation Programme, HKU. His research interest in the regulatory space, i.e., vertical learning curve, started in 2015. The curve resulted in a book titled 'Rethinking the regulation of crypto assets' in crypto that just came out in October 2021.
Suleiman: He is the head of UAB digital (Part of the Union of Arab Banks). UAB digital has started various initiatives in the Arab region regarding digital banking, crypto space, and digital finance.
Yifan: He is the CEO and co-founder of Red Date Technology.
What are your views on the regulation and crackdown in China?
Yifan: There is a difference between application and pure technology. Blockchain technology itself is neutral, and the new regulation only applied to cryptocurrency, which is only an application of blockchain technology. Currency and financial security are two different aspects, and for any country, there are separate laws to govern both. For instance, for the currency, it needed to be legal tender. For financial security, every country has strict regulations to ensure that trading is fair. China cracked down on cryptocurrencies because they view them as financial security that cannot be technically regulated.
Syren: The crackdown of cryptocurrencies in China would not stop their progress in other parts of the world. On the flip side, blockchain is currently applied in a narrowed financial context in Western countries, considering that blockchain technology has much broader usage. Although the technology does make financial services work more efficiently, the technology is viewed as speculative products that generate speculative markets and are subject to uncontrolled manipulative practices. That's why governments and regulators start checks on the regulatory aspect of such markets & products to protect the general public.
Suleiman: UAB digital has collaborated with the Arab Monetary Fund to work on sector shaping topics. In the case of China, he believed that it was an apparent response for the public good. Cryptocurrencies have become viral in the last ten years, but that does not provide good public credentials. Currently, the drawbacks of cryptocurrencies outweigh their benefits. As a result, most regulators are taking a critical approach in terms of regulating crypto assets.
Based on the amount of CBDCs rolled out and the traditional institutions entering the space, at what point you would say this is not just virality but more evidence of adoption?
Suleiman: The growth of CBDCs is a positive step towards leveraging DLT& blockchain technology to improve data systems and to surge the transition from a conventional economy to a digital economy that requires agility. Over the past decade, various technological advancements have impacted individuals. In contrast, the current upgrades are impacting the economies and society on a large scale. Technologies like AI, IoT, and blockchain can bring macro changes, which will call for policymaking and policy-shaping reforms to see how the government will address these macro changes.
Syren: We are still at the beginning or middle stage of what blockchain technology can bring to the table. Looking at the technological innovation over the last 100 years, it is evident that financial capital comes in; it causes human capital to be brought in and problems to be created and then solved. That's where the second stage begins, where technology starts to provide more utility to society. The critical aspect to look at here is whether regulatory responses effectively encourage such moves for the public good or just money is going around circles without moving forward. In 2017, the European Union provided a list of the uses of distributed ledger technology; however, the action has been taken from the financial standpoint only. We need to think carefully and move out of the "blockchain=cryptocurrency=financial product" cycle.
Moreover, technology allows different institutions to take various forms. For instance, public companies, Royal Charter, and private companies exist the structure- shareholders who are the providers of capital, managers of capital, which should be applied to the blockchain technology.
Yifan: Blockchain technology is different from other technologies. It is a communication technology that helps public chains to switch to the broadcasting way of communication. Considering this communication protocol, blockchain technology can be applied in various contexts. Just like the best way to call more than two people is through the conference call, blockchain is a much better way to communicate. The goal of the BSN blockchain is to build one more communication layer on the internet.
What are your perspectives on the situation about the ETF approval in the US? Is it a watershed moment?
Syren: He doesn't think it is a watershed moment. It is a natural progression along a journey that we have seen before. The more we see these things happening, the more it looks like blockchain is all about financial products, which is unfortunate to think of. Furthermore, when we ask questions about technology, it matters who you ask. For instance, if you ask a question to a securities regulator, you will only get an answer from that perspective.
Suleiman: In the US, different authorities look after securities, commodities. Each authority within its jurisdiction will respond to cryptocurrencies differently. ETF is just an attempt to normalize the trade in cryptocurrencies and contain trading activity within a relatively more regulated way. Cryptocurrency trading combined with an ETF will allow regulators to monitor, control, and enforce taxation properly.
Yifan: He found the ETF approval quite positive for the US financial market as it offers fair trading. ETFs are the instruments that allow governments to control cryptocurrencies.
Places such as the middle-east (Dubai) are becoming crypto-friendly capitals. How are crypto regulations in the middle east progressing?
Suleiman: In Bahrain, two cryptocurrency trading platforms have been established, namely Rain and CoinMENA. The Central Bank of Bahrain licenses these platforms. However, the Arab region has not reached the level of ETFs yet. Also, Abu Dhabi Global Market licenses platforms like Matrix. Recent news includes 3iQ wants to establish a Bitcoin fund under NASDAQ. In Dubai, the shape and structure of cryptocurrency trading are yet to be involved.
Are there any regions you have seen that the regulation has been incredibly progressive?
Syren: The regulators need to achieve a balance against reality in terms of how the technology is used, risks involved, and controls that can be put into place. Moreover, regulatory agencies as policymakers are not able to put some regulation only to find that something will be useless the next day or need to be replaced a month later. That's where Go to solution aims to act as a spot gap solution to address these issues. In Asia, many things are happening, such as categorizing cryptocurrencies as a part of a payment system or financial product. For instance, Japan and Singapore have changed their laws, which may not always be compatible, i.e., a token to be considered a payment system in Singapore whereas a financial instrument in Japan. In Hong Kong, the Securities and Futures Commission has taken two tracks- introduced new standard requirements for funds collective investments schemes a couple of years ago and then put new requirements for funds that want to invest more than 10% in cryptos. They introduced a unique solution to bringing a cryptocurrency exchange under the regulatory framework only if such exchange offers one security or token (i.e., regulations will be imposed on overall business operations). Talking about regional differences, he mentioned that in Japan, the Japan financial services agency started a blockchain governance initiative network (a neat program), where regulators proactively interact with developers to make decisions about the whole governance of the system. He also argued that he is unsure if any progress is being made towards the ecosystem development aspect.
More generally, what does the future hold for these crypto regulations? Exchanges like Binance and FTX Crypto are quickly spreading around the world. Do you see them getting beaten back by regulations, or is the technology too powerful?
Suleiman: For the public good, what is important is to consider the socio-economic needs of the regions, economies. Regulatory agencies cannot regulate digital finance based on conventional frameworks. They need to attempt to open banking, CBDCs, and licensing digital banks, which means regulators need to know the dynamics, changes and clear the backlog.
Yifan: Currently, in China, holding crypto is illegal; publishing crypto's price is unlawful. Comparatively, securities law in the US is harsh, and cryptocurrencies are regulated. In Hong Kong, whoever runs a crypto exchange cannot compete with anyone outside Hong Kong, which won't exist in three years. Japan is not too harsh in terms of technology and tries to regulate the ecosystem, which is the most brilliant move. Singapore does not consider cryptocurrency as financial security or legal currency.
Syren: Japan has always been crypto-friendly, which means they have a longer history than other financial regulators working with crypto exchanges. In Europe, marketing crypto assets proposal is driven by European parliamentary members, preoccupied with monetary policy and systematic risks. On the other hand, some jurisdictions might treat NFTs or nonfungible tokens as financial products. The United States is also looking forward to regulating centralized elements of a DeFi system. He thinks that G20 needs to take strict action and stop talking about cryptocurrency as a financial product.