Cryptocurrency Regulation: A Global Overview of Government Approaches

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( — September 14, 2023) — The history of cryptocurrencies may be short, but with its innovative technology disrupting numerous industries, governments around the globe have addressed the need for regulations. The financial sector has seen the most perks as companies like Swissmoney combine cryptocurrencies and traditional finances to provide seamless payment services and revolutionary asset management solutions.

By becoming a global force, crypto has impacted people’s financial lives, the investment world, and global economies. As cryptocurrencies are a decentralized asset, the authorities and their efforts to develop a working framework have made the crypto landscape and future quite unclear. Let’s explain the scope of crypto regulations and what different approaches governments have incorporated.

Are Regulations Around Cryptocurrencies Necessary?

To begin with, we must explain that the idea behind cryptocurrencies is to bring decentralization to the financial systems, meaning that central authorities cannot regulate the new form of digital money. Therefore, the sector went unregulated for many years.  

A series of cryptocurrency companies followed, like the case with FTX filing bankruptcy due to fraudulent activity. Many investors lost money and trust in the industry, leading to what we know as the crypto winter.

Governments also recognized the emerging threat to individuals, the economy, and central banking and the necessity to adopt regulations to prevent the escalation of fraud. The main concerns of governments are around cryptocurrencies’ unregulated nature and the threat of terrorism, fraudulent financing, and illegal activity due to crypto’s ability to circumvent imposed capital control.

What Areas Do Crypto Regulations Focus On?

Determining the exact areas of operation where governments need to take measures is complicated, as it is still being determined what crypto should be classified as. Is it an investment instrument, could it be used as a payment method for day-to-day transactions, and how would it perform in volatile market conditions? 

While the process of finding where Bitcoin and other digital assets stand in the financial sector persists, regulatory authorities concentrate their focus on the following key areas:

  • Registration and licensing rules: Before bringing a new cryptocurrency exchange or wallet to the market, companies must obtain licenses to perform business legally.
  • Tax regulations: Measure to prevent tax evasion as cryptocurrencies need to pay gains and loss taxes, similarly to stocks and other assets.
  • Anti-money laundering (AML) and know-your-customer (KYC) compliance: Security standards protecting from cybersecurity attacks, safety of personal data, and detection of fraudulent transactions.
  • Energy concerns: Although this area has yet to be addressed on a broader scale, crypto-focused legislative proposals like RIFA are recognizing the environmental impact of crypto.

Government’s Approaches Towards Crypto Regulations: A Global Point of View

Governments around the world adopt different strategies for regulating cryptocurrencies. While El Salvador and the Central African Republic (CAR) have made Bitcoin their legal currency, other countries have imposed geo-restrictions and banned cryptocurrencies altogether. Below, you can find a list of some of the most prominent countries and unions and their regulatory crypto frameworks: 

Cryptocurrency Regulations in The United States

In 2022, President Joe Biden announced the government’s approach towards crypto regulations. While cryptocurrencies are legal in the US, the Executive order amplifies the need for consumer protection, financial security, and national safety but also addresses the negative effect of energy consumption on the environment. Later, at the beginning of 2023, the White House’s Administration warned about the risks of digital assets. As a result, regulatory agencies, including the FDIC, the Federal Reserve, and the OCC, are ramping up enforcement where appropriate and issuing new guidance to ensure that cryptocurrency-related activities comply with existing laws and regulations.

As the US is safely testing the waters with cryptocurrency regulations, they are trying to find the perfect balance between utilizing the technology and preserving the safety of citizens.

The European Union’s Crypto Regulation

Earlier this year, the European Union pioneered a set of rules to regulate cryptocurrencies, which will become active in 2024. The future rules will require companies that obtain a specific license to get a particular license to store, trade, safeguard, and issue tokenized assets, like exchanged cold storage or wallets. The European Parliament also agreed on issuing cooperation rules between the member countries to agree on a taxation system concerning crypto transactions. 

The EU’s Sixth Anti-Money Laundering Directives (6AMLD) and Markets in Crypto-assets (MiCA) are the current regulations concerning KYC and licensing requirements. Still, with the new directive, we will soon see more updates and a clear framework for cryptocurrencies in Europe.

Crypto Regulation in China 

In September 2021, the Central Bank of China and 10 of the main government’s authorities declared that everything crypto-related is illegal and ultimately banned. This absolute ban states that crypto mining, transactions and payments, and creating crypto businesses are classified as unlawful. Furthermore, overseas cryptocurrency exchanges are prohibited from providing services to China.

China has adopted a rather harsh approach but is not excluding crypto from the equation, as they plan to incorporate a central bank digital currency known as RMB or e-CNY into their banking system.

Other Countries Where Cryptocurrencies are Banned or Illegal

Many countries have followed China’s approach towards the new digital money and imposed implicit or complete bans. The concerns in these countries towards illegal and fraudulent activities using crypto, as well as energy consumption and decentralization, have made them pull the trigger and prohibit people from mining, trading, and paying with crypto. Here are all the countries that have banned cryptocurrencies (excluding countries with banking bans):

  • Algeria 
  • Egypt
  • Morocco
  • Bolivia
  • Afghanistan
  • Bangladesh
  • Nepal
  • China
  • Qatar
  • Saudi Arabia

The Future of Crypto: Looking at Two Different Prospects

Cryptocurrency has risen in popularity, and the idea of how it may shape our financial future seems realistic. Enthusiasts believe in the decentralized nature of cryptocurrencies and their potential to revolutionize banking by making financial services more cost-effective and powerful. The speed, global reach, efficiency, and traceability of crypto shouldn’t be disregarded, as it promises advancement in many sectors.

On the other side of the spectrum, skeptics oppose the idea of cryptocurrencies, leaving arguments that the industry is a scam, a bubble, or, all in all, fraud. The main reasoning behind their choice is clear. Cybersecurity concerns and fraudulent transactions paid for ransom are rising, while the energy consumption of crypto technologies damages the environment through carbon emissions. 

Governments could recognize the potential of cryptocurrencies, as banks have implemented the concepts in the form of central bank digital currencies. Still, as new regulations are imposed daily, the crypto landscape remains more uncertain than ever. Whether you are bullish or bearish on the future of crypto, staying informed on the latest trends and government regulations will help you avoid the risks and reap the benefits.