A cascade of tragic financial disasters in 2022 has altered the future scope of cryptocurrency regulations. The crypto market archived the two colossal crashes – Terra Luna collapse and the FTX collapse – in its history. The aftermaths of these terrible events urged the regulators to investigate and dive into the highly volatile sector.
Cryptocurrencies a.k.a the digital assets on the decentralized blockchain technology emerged as one of the most popular neo-digital innovations of the 21st century. These assets also led to the origin of a new financial realm called decentralized finance (DeFi), parallel to traditional finance (TradeFi). However, people tag contrasting labels and perceive these assets in different ways. These are pompous hype-driven assets to some. While lucrative investments and the future mainstream assets to others.
As a result of the crypto crashes and scams, regulators shifted their watchful eyes toward this sector. But do these blockchain-based currencies require regulations when they bring up the “decentralization” promise?
In this article, let us demystify the objective and route of cryptocurrency regulations in the world.
The Global Crypto Regulatory Landscape
Several global countries boasted their varying stances on crypto regulations in the past few years. The majority of them are either in the study phase or the drafting phase. Some countries prominently amended regulatory laws and even announced cryptocurrencies as legal tenders. Conversely, few nations have imposed strict crypto bans. While the rest exclude themselves by staying neutrally hostile. In conclusion, from a bird’s-eye view, the crypto regulatory landscape is uneven.
US Crypto Regulations
Remarkably, the dominant financial economy of the United States is known for exhibiting a not-so-firm, indecisive stance on crypto regulation. Different legislations within the State have various propositions for cryptocurrency bills and laws. Notably, the US is one of the regulators who are dually skeptical about crypto mining. Evidently, the New York legislation issued a 2-year ban on mining. In terms of crypto adoption, the country encompasses one of the highest populations of crypto users.
The US regulators – Securities and Exchange Commission (SEC), the Treasury, and Commodity Futures Trading Commission (CFTC) – stand in the country’s frontier to detect and scrutinize every move of the cryptocurrency industry.
Significantly, SEC keenly looks out for loopholes in the crypto market. In the recent period, it is unreasonably aimed to seize or restrict crypto firms. To highlight, Ripple vs SEC garners major attention.
Other American Countries
Whereas in Central America and Latin America, countries announced Bitcoin (BTC) as the legal tender. Especially, El Salvador is the most pro-Bitcoin nation that mostly betted its country’s money on BTC.
EU Crypto Regulations
Majorly, European countries proudly host their native crypto licensing regime – Markets in Crypto Assets Regulation (MiCA) – in the region. This law is in its final stage of approval. Notably, the requirement of translating this 400-page framework into 24 official languages is the cause of the delay.
MiCA is primed to introduce tough norms to combat disasters such as the stablecoin Libra, scammy initial coin offerings (ICOs), and more specifically the FTX contagion. This soon-to-be EU law originated in September 2020. In every possible way, these norms are aimed to combat anti-money laundering (AML). If implemented, any crypto service provider has to advance must clear the checkpoints of this MiCA framework to enter the 27 EU-linked countries’ markets.
UAE Crypto Regulations
United Arab Emirates (UAE) is one of the most crypto-friendly nations in the world. It laid a highly-encouraging regulatory framework for digital assets and crypto firms. Moreover, the Emirate aims to transform Dubai into a massive crypto hub with special economic free zones. It is evident in the laws and strategies that the country amended since 2020.
UAE began its crypto journey in 2018. In 2020, it issued the Crypto Assets Activities Regulation (CAAR) to regulate the trading, and licensing of crypto assets and their service providers. Following this, in 2021, Dubai recorded two important launches – UAE Blockchain Strategy & a “crypto valley” – to incubate the crypto ecosystems.
2022 witnessed the release of the Virtual Assets Law and a special governing body called the Virtual Assets Regulatory Authority (VARA). VARA is responsible for regulating, governing, and licensing virtual assets and virtual assets service providers (VASPs). Interestingly, VARA is the first regulatory body to have a metaverse headquarters rather than a physical HQ. Significantly, Dubai revolutionized the regulatory landscape by announcing its metaverse strategy. Recently, UAE took a lead to initiate the process of launching its own CBDC, Digital Dirham.
Indian Crypto Regulations
India features among the top countries that hold the highest number of cryptocurrency holders. This completely contrasts with the regulatory stance of the Indian government. The nation’s regulators have imposed crypto taxes – 30% on every crypto transaction. They neither support the adoption of cryptocurrencies nor ban them. India seems to be concerned about the disadvantages of cryptocurrencies as they can be exploited in terms of money laundering and terrorism.
Crypto Regulations in Other Asian Countries
The Russian-Ukrainian War turned out to be a key factor that urged the two governments to release crypto-related bills and regulations. Russia adopted these assets for cross-border payments and trade. On the other hand, Ukraine also received funds in cryptocurrencies to boost its recovery during the war.
China, however, lifted a mighty wall to bar cryptocurrencies from foraying into their financial system. This came out as a sharp shock to the country’s crypto investors. Contradictorily, Hong Kong stood out by voicing its mission to emerge as a potential crypto hub. This legislation hailed support for crypto and web3 startups.
Prominently, Japan is one of the jurisdictions in Asia that actively amended laws to regulate cryptocurrency-related innovations and operations. Meanwhile, Vietnam, which has a good cryptocurrency adoption index, has not legalized crypto as an asset.
Recently in the past 2 years, nations have come forth to adopt the fiat-backed crypto assets – Central Bank Digital Currencies (CBDCs). Still, some nations wave a strong no to CBDCs. Regulators are persuaded by this set of crypto assets because of their dependency on their central banks. Hence, CBDCs are often regarded as centralized cryptocurrencies.
Should Cryptocurrencies Be Regulated?
Why crypto needs regulations? It is natural to spot this question among crypto enthusiasts who fell in love with the promise of decentralization – the exclusion of centralized authorities. Regulating does not mean the government would intervene in the functioning of cryptocurrencies. It indicates only their role of supervision. Sadly, the US SEC’s toxic regulatory approach misleads and even triggers the investors’ sentiment.
Crypto regulations come in as the predominant aid to boost the mainstream adoption of cryptocurrencies. To be widely adopted in the global financial markets, it becomes important for crypto assets to comply with certain regulatory guidelines. Through this, crypto-related companies and VCs will be benefitted by enhancing capital flow.
On the other hand, what kind of benefits will countries experience if they embraced crypto regulations? Let’s list them down:
- Safeguarding its citizens while investing in cryptocurrencies and other digital assets.
- Aid financial inclusion by allowing the banking of unbanked citizens.
- Boost the country’s economy with these innovations
However, nations are still hesitant as they are concerned with the possible affinity of cryptos to AML and scams. Also, they restrict the crypto-related mechanisms like “mining” that pose environmental hazards.
Challenges to Crypto Regulations
Nothing goes the easy way. Especially, formulating the regulatory framework for the evolving crypto landscape requires an all-inclusive process. To successfully customize and draft crypto regulations, the nations are prone to the following hurdles.
- Lack of in-depth industry/technology-specific knowledge
- Insufficient talent acquisition
- Difficulty in monitoring the rapidly expanding crypto ecosystem
- Inability to Mitigate Operational Risks
Notably, International Monetary Fund (IMF) commented:
“the electronic life cycle of crypto assets amplifies the full range of technology-related risks that regulators are still working hard to incorporate into mainstream regulations.”
Conclusion
Amid the chaos and its follow-up ruins, what would crypto regulation look like in 2023 will be an anxious question to answer. We could anticipate the amendment of laws that have their bills queued up at the final approval. However, some regulators still view cryptocurrencies as bubbles. Especially, the US SEC is determined to aim at crypto entities by scrutinizing their shortcomings.
Crypto disasters like Terra Collapse, high-end scams, and FTX contagion spread frightening threats to the macroeconomy by wiping investors’ funds. These traditional finance (TradeFi) regulators crucially consider themselves to prevent such crashes by imposing stringent laws or bans. The clarity in regulations is not uniform in the landscape of global crypto regulations.
