The relationship between cryptocurrency operators and regulators has always been inherently tense. While most of the major economies have tacitly given legal acceptance to certain cryptocurrency-related activities by taxing them, the regulatory risk is still very real in many jurisdictions. Only last year, Chinese lawmakers banned all cryptocurrency trading and mining activities, effectively killing the country’s digital asset industry in one fell swoop.
India briefly looked set to do the same after a prior ban had been overturned in 2020, but the government pulled back at the last minute.
However, recent news from several countries, including the US, the UK, the EU, and the UAE, indicates that the regulatory horizon appears to be clearing. Far from banning cryptocurrencies, regulators in these countries are taking steps that aim to promote responsible innovation while deterring illegal activity and protecting investors.
Here’s a roundup of what’s been happening.
US crypto entrepreneurs have spent years attempting to navigate decades-old regulations governing the sale of securities and trying to figure out how regulators will apply them to crypto. Now, it seems clarity is finally on the horizon.
On March 9, President Joe Biden signed an executive order “on ensuring the responsible development of digital assets.” The order doesn’t give much away, as it only instructs the relevant government agencies to begin working on a federal policy toward digital assets. However, Treasury Secretary Janet Yellen gave a speech in early April, where she spoke of the need to “support responsible innovation while managing risks – especially those that could disrupt the financial system and economy.”
The remarks, along with the wording of Biden’s executive order, appear to indicate that the US is softening in its approach to digital assets and, indeed that the current administration believes they have a role in the financial system.
Firstly, Western governments have expressed concerns that cryptocurrencies could provide a safe haven Across the Atlantic, the UK government has also been giving a positive impression of its intentions to regulate cryptocurrencies. In early April, the government outlined plans to make London a digital asset hub, with financial services minister John Glen declaring that “the UK is open for business — open for crypto businesses.” He also laid out plans to regulate cryptocurrencies, starting with stablecoins. Although there was no information forthcoming about which stablecoins would be included in the regulation, the minister confirmed that the government would apply existing laws regarding electronic money transfers to stablecoins.
The UK government has also announced that it will be launching its own NFT as an emblem of the nation’s goal to become a global crypto hub. Chancellor Rishi Sunak confirmed last month that he had instructed the Royal Mint to create the NFT.
The European Union is somewhat further along in its development of a legal framework for cryptocurrencies. The Markets in Crypto-assets (MiCA) regulation was first introduced in 2020, aiming to provide clarity to cryptocurrency operators over areas that aren’t covered by existing financial laws. It will require crypto asset service providers like exchanges to obtain a license to operate, while token offerings will be subject to a new set of disclosure requirements comparable to the rules for listing securities
In March, the legislative text underwent an important update, as lawmakers looked set to pass it to the next stage with a worrying amendment included. The amendment would have effectively outlawed proof-of-work currencies, which includes Bitcoin and (at least for now) Ethereum.
Fortunately, members of the European Parliament voted the legislation through without the amendment included. However, the draft text still references “minimum environmental sustainability standards” that will be applied to assets, so it remains to be seen how this will be quantified and how it will affect energy-intensive assets like BTC. The MiCA regulation is expected to pass through the final stages of the EU legislature later this year.
Incidentally, Germany’s willingness to adopt a blockchain strategy relatively early compared to its EU neighbors has now led to the country being deemed the most attractive in the world for crypto investments.
Dubai is another example of a jurisdiction that’s being proactive in adopting sensible cryptocurrency regulation and now reaping the rewards. At the end of February, the Emirate of Dubai brought its law on the regulation of digital assets into force. It also established a dedicated regulator in the form of the Dubai Virtual Assets Regulatory Authority or VARA. VARA has full legal status with the capacity to “protect and regulate stakeholders in virtual asset services.”
Since then, crypto operators have been flocking to the opportunity to set up in a crypto-friendly nation. Top-tier crypto exchanges, including Binance, FTX, Bybit, and Crypto.com, have all announced moves.
Ukraine is another country that has recently been rolling out sweeping changes designed to welcome cryptocurrency into the country as it continues to explore all avenues in the fight against Russia. Alexander Bornyakov, Ukraine’s Deputy Minister of Digital Transformation, gave a speech in April in which he spoke of the country’s ambitions to become a top 5 in terms of friendly crypto regulation. Cryptocurrency donations have been instrumental in helping the country fund its war effort, with pledges exceeding $100 million at the time of writing.
However, the most recent development is that the country has imposed restrictions on cryptocurrency purchases made in the national currency, hryvnia, to stem capital outflows. While this may seem like bad news, it’s a measure in place under Ukraine’s current state of martial law, implying it’s not intended to become permanent.
It’s taken many years to get to this point, but regulators are finally beginning to recognize the benefits of embracing innovation. Cryptocurrency has grown to a multi-trillion dollar market cap even despite having no legitimate license to operate in many countries. With sensible regulation underpinning the industry, the infrastructure is in place for crypto to take its place on the world markets as a legitimate global asset. The growth trajectory from there is anyone’s bet.