The state of cryptocurrency regulation today
Ask a hundred people on the street to explain cryptocurrencies, and you’ll probably get a hundred very different answers. Ask governments and regulatory agencies around the world what to do about cryptocurrencies, and you’ll probably get just as many — if not more — different responses.
On the one hand, most countries and regulatory regimes have over the years built up large bodies of laws regarding so-called ‘fiat’ currencies, which are typically backed by central banks. These rules are aimed at ensuring stability and confidence, and at preventing illegal activities — they tell citizens, businesses and investors: ‘Your money is safe.’ So it’s understandable there’s a desire to apply similar controls to unofficial currencies such as digital money.
On the other hand, however, most governments don’t want to discourage innovation or reduce opportunities for new types of businesses. Crypto is nothing if not innovative, so few regulators think it’s wise to ban cryptocurrencies completely.
But how to regulate a digital, and usually pseudo-anonymous, form of currency? Clearly, in many ways, the usual rules of fiat currencies simply can’t apply.
For example, bitcoin and all of today’s other digital currencies tend to be used less for purchases and payments, and more as investment vehicles. In addition, the explosion of ICOs (initial coin offerings) has seen many new cryptocurrencies being used as securities rather than as money.
So cryptocurrencies aren’t exactly like cash. But they can sometimes be used like cash, so they’re not exactly like regular securities either. This leaves regulators with no clear answers on how best to deal with them. And with so many different regulatory regimes around the world, there’s a lot of variation in how regulators are dealing with cryptocurrencies.
At the moment, nine countries (Algeria, Bolivia, Egypt, Iraq, Morocco, Nepal, Pakistan, United Arab Emirates, Vietnam) have opted for an outright ban, while another 16 — including China — have implicit prohibitions in place. China, for instance, has ordered the closure of all domestic cryptocurrency exchanges, declared ICOs illegal, prohibited bank funding of cryptocurrency-related activities and banned access to overseas platforms for ICOs and cryptocurrency trading.
Other countries have chosen to support cryptocurrencies but are doing so in different ways. Some — such as the Isle of Man and Singapore — employ finance laws aimed at preventing money laundering and terrorism. Others, including the UK, apply tax laws developed for fiat currencies. And some countries do both.
Still, other regulators are looking at ways to govern the use of cryptocurrencies at regional or global, rather than national, levels. A recent European Parliament study, for example, laid out a number of recommendations for future EU policies and regulations. However, it noted that, while EU-wide controls are more appropriate than national ones, international regulations would be even better.
The G20 is one multi-jurisdictional organisation that is looking at just such rules. A group that includes the US, UK and EU nations — as well as Australia, Brazil, Canada, China, India, Indonesia, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey — the G20 is currently working on a global framework for regulating cryptocurrencies for tax and other purposes.
“We acknowledge that technological innovation, including that underlying crypto-assets, has the potential to improve the efficiency and inclusiveness of the financial system and the economy more broadly,” the G20’s Finance Ministers & Central Bank Governors group said in a March 2018 communiqué. However, it added, digital currencies also raise concerns about “consumer and investor protection, market integrity, tax evasion, money laundering and terrorist financing”.
