After the incredible cryptocurrency boom of 2017, global governments couldn’t ignore the growth of Bitcoin anymore.
People have become increasingly interested in cryptocurrencies and how they allow anyone to access borderless financial products. Today, people can buy Bitcoin almost anywhere in the world and use it to participate in the internet economy.
But crypto is currently outpacing existing regulations and governing bodies are well aware of this phenomenon. Consequently, specific regulations are being introduced into global financial markets for cryptocurrencies. These will help in monitoring the emerging cryptocurrency market and allow for clearer guidelines.
Why Regulating Cryptocurrencies Is Important
Governments around the world haven’t been too keen on cryptocurrencies in the past years. While some countries have embraced the technology, most of them have a deep mistrust of the crypto market.
This is mainly due to the large number of problems encountered throughout the infancy of blockchain technology. There are many cases where crypto exchanges have been hacked, resulting in the loss of funds. More than $4 billion in BTC and other cryptos have been lost or stolen since 2011.
Furthermore, this lack of regulation has not only led to the loss of funds, but to illicit activity as well. Use of cryptocurrencies used to be quite prevalent on the dark web for all kinds of misdemeanours. And while this trend has been declining, suspicion still looms over the use of Bitcoin for criminal behaviour.
Regulating cryptocurrencies will help counter these problems and should boost adoption. If people trust Bitcoin more, they will be more inclined to use it on a regular basis as an investment opportunity or payment method.
How major countries are regulating cryptocurrencies?
The legal status of BTC is still hazy. Institutions are still debating whether crypto should be considered legal tender. Are they money or an asset? Should they be freely available for everyone or strictly regulated?
Different countries have been having trouble finding common ground on these issues. For example, in the first months of 2020, there have been different interpretations issued by three major countries:
- France recognized Bitcoin as a currency
- Germany deemed them financial instruments
- Australia recognized them as securities.
This is mainly because cryptocurrencies are quite unique and difficult to mirror to an existing asset class. Furthermore, they can be very different from one another, which complicates the regulation process even more.
That said, let’s have a look at the state of things and what can be expected in 2021.
USA regulations
The US is usually the ones that set the pace for crypto regulation, for better or worse. One glaring problem is that regulations are conducted state-wise and differ from one state to another within the country. However, the IRS has issued a tax guide for crypto, and tax profits made through crypto trading since 2014.
Even different government bodies seem to have trouble agreeing on who should control them. The SEC considers them securities and the CFTC as commodities. The government is generally nervous when it comes to encouraging cryptocurrencies, as they could impede the US Dollar’s leading position in global finance.
For 2021, the ICE revealed a Crypto Intelligence Program in the budget. This program will seek to identify unlicensed crypto capital flows taking place across peer-to-peer marketplaces, online forums, crypto exchanges, and darknet markets.
Europe regulations
Cryptocurrencies are considered legal in most European countries. Nevertheless, specific details on regulations vary between different countries.
One blanket regulation throughout the EU is that all crypto websites are to comply with strict Know Your Customer and Anti-Money Laundering standards, as well as sharing data with the regulator.
Generally speaking, the EU has been slowly tightening its regulation of cryptocurrencies. The latest occurrence is the 5th EU AML Directive which came into effect in January 2020. It states that cryptocurrency exchanges need to register with financial regulators and transfer client wallet addresses to them.
Despite that, Europe has been also advocating for innovation and the adoption of blockchain technology. For example, in September 2020, the EU Commission proposed a pilot regime for market infrastructures that wish to try to trade with crypto.
Other countries
Russia
While the population is very crypto-friendly, the government has been quite hostile towards the technology lately, classifying every Bitcoin transaction as a potential money-laundering scheme.
India
India had notoriously banned all trading and use of cryptocurrencies until recently. As of March 2020, crypto is deemed legal once again.
Conclusion
Regulation for both cryptocurrencies and crypto exchanges is essential for the future of digital finance. It brings legitimacy to the market and makes it more attractive for new businesses, banks, and investors worldwide.
And while countries are struggling to find a mutual understanding of cryptocurrencies, we can only hope that they will realize how important they are in peoples’ lives and that they should be accepted one way or another.
By Julia Beyers
