Despite the existence of crypto assets for over a decade, their regulation has only recently become a central concern for lawmakers. The change in perspective is attributed to the widespread adoption of cryptocurrencies as investment alternatives, protective measures against weak fiat currency inflation, and potential means of payment.
Brief Overview Following the advent of Bitcoin, cryptocurrencies were long disregarded by governmental bodies, leading to their characterization as the “Wild West” of finance. As stated by the US Financial Crimes Enforcement Network in 2013, cryptocurrencies hold no legal tender status in any jurisdiction. Even following significant cyber-attacks on cryptocurrency exchanges, including the significant loss of 850,000 Bitcoins from Mt. Gox, countries remained hesitant to create clear cryptocurrency regulations. It was only Japan, in response to the Mt. Gox incident, that pioneered legislation in 2016.
Recently, the regulatory spotlight has been increasingly cast upon digital assets, and this is unlikely to fade. As the market capitalization saw rapid growth and extreme volatility due to heightened retail and institutional interest, issues of bankruptcy, scams, and misuse of funds within the crypto industry emerged, leading to distrust among consumers. Therefore, regulatory bodies are now paying keen attention. As cryptocurrencies increasingly intertwine with traditional finance, they exert a growing influence on the stability of mainstream finance. To ensure consumer protection and mitigate potential systematic risks brought about by the swift innovation and insufficient risk management in the sector, comprehensive global regulatory strategies may be required.
Is a Global Crypto Regulation Framework Feasible?
While the crypto market is globally pervasive, individual countries address it differently. Asia and the United States are frontrunners in this area, but Europe is not far behind. Some jurisdictions have outright banned the issuance, possession, or usage of cryptocurrencies, while others welcome crypto-related businesses and market development. Given the erratic nature of the situation, there is a call for a uniform regulatory system for the crypto industry. But can this be realized?
At present, there is no universal agreement on definitions, taxonomies, or classifications within the crypto world, an issue that continues to be worked on as blockchain technology evolves. National regulators have spent an excessive amount of time defining crypto-assets while essentially operating in isolation from one another. A comparison of regulatory systems worldwide shows a discrepancy in licensing and registration requirements, as well as inconsistent definitions and classifications. Given the global nature of crypto operations, managing the ecosystem without a common basic understanding is challenging.
Expectations are high for more crypto laws and regulations in the future. Although almost all countries have issued some form of statement on cryptocurrency regulations, whether in relation to funding, taxation, or exchanges, there is still a lack of uniformity and transparency that could level the playing field for all parties involved. Some countries have drafted specific laws for cryptocurrencies, while others are shaping existing laws to accommodate them. While stricter regulations could enhance security and prevent financial crimes associated with crypto, overly restrictive measures could lead to an investment capital outflow and a downturn in the national crypto industry. Regulators face the task of striking a delicate balance, and time is of the essence.
