Last week we celebrated 10 years of bitcoin, after Satoshi Nakamoto published his whitepaper in 2008. Since then the technology behind bitcoin but also the adoption of cryptocurrencies has come a long way. Today we thus face not only a broad spectrum of businesses in the field but also a set of regulations applied to the space as regulators and government too are taking a peek at blockchain and virtual currencies.
Although the market definitely is global it is approached seperately by the different nations. Those who are on the front are Asia and the United States, but also Europe is catching up if not at least in terms of regulations.
Asia – from early adoption to explicit bans
While in 2013 China was the main driver of the bitcoin price and considered cryptocurrencies as an alternative investment, the country quickly changed its course only a year later. In 2014 the government and regulators started imposing strict rules on cryptocurrencies on the Chinese market. One example is the People’s Bank of China (PBoC), ordering banks to close accounts which included virtual currencies. The issue ran its course and at the end of 2017, the year of the big hype, China banned initial coin offerings and prohibited local exchanges.
Meanwhile other Asian countries took their stance for regulatory developments of the space. South Korea, similar to China, tried to shut down domestic exchanges in 2017 but remained unsuccessful due to a petition. Since then the country is setting rules to clarify the industry in order to prevent money-laundering and tax evasion. The ban on ICOs which was issued during 2017 too was lifted again in 2018. Japan started looking into regulations early, being the country of operation for Mt.Gox, a huge exchange which was hacked in February 2014. After that the nation issued various punishments and forced other exchanges to halt their businesses. Still in 2017, Japan allowed merchants to accept bitcoin as a payment and in 2018 set up a government-backed research group.
Nowadays Asia can roughly be split up into two groups when it comes to regulations. One being the countries explicitly banning and prohibiting any activities around cryptocurrencies, the second being open minded countries, who aim to drive the development of blockchain and crypto adoption.
European Union – 28 seperate nations, 28 seperate approaches
Looking at Europe, in particular at the European Union, the number of initiatives taken is quite high, especially during the last few years. Yet the issues are addressed seperately by the 28 nations who are taking the statements from the European Parliament into account but putting them into action distinctively. In 2014, Germany was the first European country to accept bitcoin as a currency. One year later Sweden was the first to authorize trading of two Bitcoin exchange traded notes.
While the actions taken are comparably small in number at the beginning, 2018 presents itself as the year for regulatory thoughts on cryptocurrencies. In April 2018 lawmakers agree on the fifth Anti-Money Laundering Directive to tackle the problem of money laundering, tax evasion and fraud with cryptocurrencies. Further statements issued include BaFin’s report on distributed ledger technology and a policy contribution from Brussels-based think tank Bruegel. The contribution was written for the informal ECOFIN meeting of EU finance ministers and central bank governors who put the topic of cryptocurrencies on their agenda at the beginning of September 2018.
Apart from considerations by the EU, several states are taking up speed to be at the front of the blockchain and crypto development. Pioneers for example are Malta and Switzerland, to only name a few. Malta just passed three bills into law in July 2018 which were especially designed for cryptocurrencies and blockchain technology.
United States – embracing reasonable regulation
To ensure transparency and fairness, the United States embrace what they call reasonable regulation. Their approach is built on the existing legal framework which is applied to cryptocurrencies rather than setting up special crypto laws. So far the government of the United States has not enforced its constitutional power, leaving the regulation of virtual currencies to its member states. A number of federal states issued guidlines but broadly the regulation is built on statements from state agencies such as the Securities Exchange Commission (SEC), the Commoditiy Futures Trading Commission (CFTC) and the Internal Revenue Serice (IRS).
In late 2014 the IRS issued a first guidance for the taxation of virtual currencies such as bitcoin, explaining how to apply general tax principles. Later, in July 2017, the US was the first country to regulate initial coin offerings through the SEC. The statement concludes that tokens can in various cases be considered as securitites, which are then subject to strict laws. For the same matter the SEC issued a warning to investors, making them aware of the classification of tokens as securities. One year later, in July 2018, the IRS set up a taskforce to combat transnational tax crime and money laundering. Together with four more authorities, the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Fiscale Inlichtingen- en Opsporingsdienst (FIOD), HM Revenue & Customs (HMRC), the Internal Revenue Service Criminal Investigation (IRS-CI) is working closely on investigating the crypto space. The J5, Joint Chiefs of Global Tax Enforcement, are developing shared strategies which they drive and communicate to prevent crypto-related crimes.
What to expect in the future
Considering the exponential growth of regulatory measures all over the world, it is to be expected that the future will bring even more rules and regulations for the crypto space. By now nearly all governments at least issued statements on how cryptocurrencies are regulated may it be in terms of funding, taxes or exchanges, still the space misses clarity and unified approaches which would put everyone in the crypto sphere on the same level. Pioneers like Malta developed specific laws for cryptocurrencies and blockchain technology, others are trying to shape them to fit existing rules. Yet, the question is whether or whether not this totally new economy which is slowly affecting all prevalent industries should get its own legal framework. Ideally elaborated by all players – for the crypto market this means a global approach.
Crypto regulation US
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J5: global tax taskforce
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Liechtenstein: blockchain and bitcoin regulation
South Korea’s regulatory steps
Cryptocurrency regulation EU