Cryptocurrency regulation: which way do the authorities choose?

The more popular cryptocurrency becomes, the more it attracts the attention of regulatory authorities. Laws concerning digital assets appear every day. Reinis Tumovs, an independent financial expert and investor from Latvia, helped us to understand which countries can be called ‘crypto-friendly’, and where the authorities are instead ‘tightening the screws’.

USA 

In America, the plans of the authorities regarding cryptocurrencies are contradictory. Moreover, different states treat cryptocurrencies in completely different ways. For example, Wyoming has already passed a law on the creation of the first cryptocurrency bank, which is designed for the safe and legal storage of digital assets. Also, Oklahoma has introduced a bill allowing the use, sale and exchange of cryptocurrencies in public institutions.

The overall picture is as follows: on the one hand, the SEC and the Ministry of Finance insist on tightening the regulation of cryptocurrencies. On the other hand, digital assets have a lot of lobbyists who promote the interests of the crypto industry at the federal level.

Nevertheless, the Biden government plans to tighten tax regulation of the cryptocurrency market by 2023. The changes will affect both crypto companies and the greater crypto community alike. The revenue generated by the new tax plan is planned to finance the industrial sector, transport, repair and construction of housing, etc. The program plans to attract $28 billion in taxes from digital assets.

In general, cryptocurrency is warmly welcomed in this part of the world, and the climate contributes to the work of the largest markets and exchanges.

South America

In South American countries, the situation around cryptocurrencies has not yet become clear. For instance, the use of digital currencies has been banned in Bolivia due to concerns over tax evasion and money laundering. At the same time, on June 9, the Parliament of El Salvador adopted a law that gave Bitcoin the official status of the country’s legal tender, on a par with the US dollar.

A bill aimed at defining cryptocurrencies was also discussed in the Brazilian parliament in March. It allows one to freely issue, transfer and use cryptocurrencies. In a guidance document issued by the Brazilian Ministry of Finance, cryptocurrencies are recognized as a financial asset. The document requires individuals and legal entities to report to the tax authorities about any transactions with cryptocurrency in the amount of more than 30,000 Brazilian reais ($7,600).

Ecuador passed a law in 2014 banning Bitcoin and decentralized digital currencies. The Central Bank of Ecuador further explained that cryptocurrencies are, in fact, banned in the country. It also explained that the purchase and sale of digital currencies via the internet is not prohibited, but they are not considered legal tender.

China

Here, the laws for the crypto industry are getting tougher every month. Just over the past month, four provinces of the country have introduced a ban on mining, with Chinese banks and other financial institutions barred from conducting operations with cryptocurrencies. The restrictions forced 70% of miners to uproot and seek a milder mining climate elsewhere.

At the moment, China has taken the path of monopolization of the blockchain by the state: they are trying to transfer all transactions under the digital yuan, which will allow the country’s leadership to keep everything under its control.

Russia

The head of the Bank of Russia, Elvira Nabiullina, has repeatedly criticized digital assets and called them ‘surrogates’. However, this does not prevent the mining of cryptocurrencies, since this area still remains unregulated on the territory of the Russian Federation. The rest of the cryptocurrency industry is regulated by the law ‘On Financial Digital Assets’, which entered into force on January 1, 2021. The new law allows Russian citizens to trade digital financial assets on the territory of Russia, but prohibits the use of cryptocurrencies to pay for goods and services. Advertising of payments with digital assets also falls under the ban. The law also authorized the courts to resolve disputes related to cryptocurrencies.

Moreover, in February, in the first reading, the State Duma adopted amendments to the Tax Code allowing taxes to be levied on cryptocurrency transactions.

Japan

This country has long remained a place where cryptocurrencies were 100% allowed. This happened against the background of a rather tight-laced tax authorities in the country, which, among other things, took on the functions of a regulator of digital payments. In February 2021, the Financial Services Agency of Japan announced an update to the regulatory rules that will counteract money laundering and terrorist financing by local cryptocurrency companies.

Switzerland

This country classifies cryptocurrencies as assets and accepts Bitcoin as legal tender in some regions. Recently, a law on the regulation of cryptocurrency assets has been adopted here, which requires a license for trading through distributed ledger technology (DLT). Switzerland was one of the first to introduce progressive regulation for the cryptocurrency business and received huge benefits. The country boasts something called the Crypto Valley — a fintech center serving the cryptocurrency business in Switzerland and Liechtenstein. It consists of more than 900 companies, and the total valuation of the 50 largest companies is about $37.5 billion. Switzerland’s main stock exchange, SIX Swiss Exchange, announced in January that its trading turnover of cryptocurrency products exceeded $1billion in 2020.

What will be the future of cryptocurrency regulation?

These contradictory actions so far speak only about one thing — countries are trying to regulate crypto assets, but they do not yet know how. We are all at the beginning of the path. And it is clear from everything that so far the regulators do not have the time to respond to the challenges that the rapidly developing cryptocurrency industry throws at them. It is obvious that cryptocurrencies are transforming the reality around us, and regulators have to take actions that lack coherence and do not yet follow an algorithm. We are at the stage of conceptualizing cryptocurrency and blockchain regulation, and we are now witnessing the emergence of some vaguely outlines.

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