Examining The Most Influential Jurisdictions in Global Crypto Regulation

These 10 countries are refining the frameworks of crypto regulation, and their success and failure show us why global regulations need to reform.

In the early days of the Silk Road, Bitcoin and its crypto brethren were viewed as a lawless financial medium, too obscure to regulate, and too complex for wide-spread adoption. Since then, crypto has become more advanced and better understood, and now, crypto technology is proving useful enough to become the world’s newest financial tool. Once considered an oddity used to facilitate dark-web transactions, crypto technology is quickly evolving into the most useful innovation since the advent of the internet age. But, despite its “coming-of-age”, crypto continues to operate in a regulatory grey-area across much of the globe, at the expense of trust and development. 

While many big players in the world of global finance are beginning to explore and develop digital currency technology, governments, and financial authorities are struggling to frame these innovations inside of succinct legal frameworks. Part of the problem is that crypto technology evolves rapidly, thus making it hard to keep pace from a regulatory standpoint. A greater issue, however, is that there is no consensus among global regulators who seek to govern crypto and its related service industries. 

Not only do rules and regulations change across international borders, but rules and regulations also aren’t even standardized on a federal level in many countries, leaving innovative financial investors and service providers to tip-toe through the world of crypto with little certainty about the legality of their endeavors, or proper protection from fraud or market manipulation. In most jurisdictions, crypto is subjected to the same laws as assets, property or securities, providing speculative investors with a familiar set of rules, but failing to address the use of crypto as a currency in everyday transactions. Other jurisdictions simply view crypto as a currency and ignore the volatile values of the digital assets. In many developing economies, crypto is either outright banned or completely unregulated (or under-regulated). Both of these approaches leave the crypto-market to operate in a regulatory vacuum, opening the door to clandestine transactions that often facilitate criminal activities. 

To better understand how the world’s biggest and most influential crypto markets are being regulated, let’s examine 10 of the most important crypto-jurisdictions on the international stage today.

Australia

Australia has been decidedly proactive toward crypto regulations since the boom of 2017. Currently, the country treats cryptocurrencies as property, not as currencies, subjecting digital assets to Capital Gains Taxes (CGTs) and protection from theft. The operation of exchanges in Australia is legal, but exchanges must register with AUSTRAC and meet strict Anti-Money-Laundering (AML) and Know-Your-Customer (KYC) rules. In early 2019, the Australian Securities and Investments Commission (ASIC) issued new guidance for cryptocurrency-related concerns such as ICOs and wallet service providers, providing Australian consumers with a federally implemented legal framework that offers unprecedented protection and guidance.

Infographic: How Common is Crypto? | Statista You will find more infographics at Statista

Argentina

Argentina’s citizens are adopting cryptocurrencies at an astounding rate. Argentina currently sits in third place with regard to global cryptocurrency adoption according to a surveyconducted by Statista.com. This is likely due to the many Argentinians who are using cryptocurrency to preserve their wealth against a volatile national currency, and those who are taking advantage of the many regulatory grey areas within the country to hide their wealth from tax authorities. Interestingly, some public transportation providers accept payment in cryptocurrency, making a good use-case for widespread adoption in Argentina.

Argentina does not prohibit the use of cryptocurrencies, and regulators view cryptocurrencies as both assets and currency (income) when viewing the taxation of digital assets, depending on the context of how the cryptocurrencies are used, but enforcement is sparse and self-reporting is rare. Ultimately, regulation in Argentina is ambiguous, and it is likely that most cryptocurrency transactions operate outside of the sparse regulatory frameworks in Argentina.

Brazil

Brazil is home to some of the highest cryptocurrency use in Latin America, with nearly 100,000 BTC exchanged in April 2019 alone. In 2018, the total value of the Brazilian crypto market exceeded $8 billion reals ($2 billion USD), according to the National Treasury, and the country ranks 2nd on the list of countries that are adopting cryptocurrency. In mid-2019, Brazilian authorities issued regulations that require any crypto-transaction exceeding $30000 RLD (~$7500 USD) to be reported to tax authorities in order to increase tax revenues. 

Outside of this May 2019 regulatory change, Brazil’s massive crypto market operates largely unregulated, with few specific regulations in place to protector speculative investors or currency adopters. Service providers and crypto sales, such as ICOs, exchanges, and wallets are not required to meet any specific KYC or AML rules, and the Brazilian cryptocurrency market is still very much a “wild-west”.  

Columbia

None of the platforms or producers of cryptocurrencies are regulated by Colombian law. Nor are they subject to the control, surveillance or inspection of the government. There is no regulatory body in place to enforce compliance, making Colombia a hotbed for cryptocurrency laundering, shady transactions, and unprotected consumers. Despite this, Colombians are flocking to cryptocurrency as means to protect their wealth from an inflation-prone national currency, and without regulation, Bitcoin ATMs, exchanges and on/off ramps are easy to find and widely adored.  

Colombia is a prime example of what an unregulated cryptocurrency market is capable of, and a good example of how the technology behind cryptocurrencies can be utilized to protect citizens from corrupt financial systems and untrustworthy governments. 

Canada

Canada’s cryptocurrency regulation is largely focused on the use of cryptocurrencies as securities/assets. This is a common approach among many developed western countries,  and it ensures the gains produced from the exchange of cryptocurrencies is properly taxed, and that the investors involved in these transactions are sufficiently protected under Canadian Law. Of course, Canadians are also allowed to use cryptocurrencies as a form of payment, and under these circumstances, crypto transactions are subject to the same taxation rules as any currency transaction.

Canada was the first country to ensure AML and KYC compliance requirements were met by cryptocurrency service providers like exchanges and wallets, and the industry continues to be subject to strict scrutiny from Canadian authorities, making Canada one of the safest countries in the world to invest in cryptocurrencies. 

Canada is a progressive nation when it comes to the cryptocurrency industry. The largely french-speaking province of Quebec has become a hub for large, profitable Bitcoin mining operations such as Bitfarmsthanks to cheap hydro-electricity and a cold climate. The Bank of Canada is particularly interested in blockchain technology and has been experimenting with blockchain technology across a range of potential verticals, as seen in their development of Project Jasper, and the country has recently vowed to work alongside leaders in the cryptocurrency space to revamp their laws to be even more accommodating to the nascent cryptocurrency ecosystem.

China

China has a love-hate relationship with cryptocurrencies. On one hand, the country is actively promoting the developmentof blockchain technologies to help put China at the top of the heap when it comes to innovative crypto technology, exemplified by their upcoming release of a national cryptocurrency. On the other, China is infamous for banning the trading of cryptocurrency within the country via financial institutions, leaving its citizens to fend for themselves on peer-to-peer exchanges or other clandestine methods of trading. 

Ownership of Bitcoin and other cryptos is not illegal, and the courts view Bitcoin as a form of property – protecting consumers from theft. While Chinese citizens cannot trade their cryptocurrencies for fiat, they can exchange them on a peer-to-peer basis, opening up the door to creative ways of partaking in the global cryptocurrency boom.  

India

India’s stance on crypto is similar to that of China. Financial Institutions are banned from providing crypto services or dealing with cryptocurrency-related financial tools, and the government is apparently keen on developing crypto technology to help improve their national currency. 

Individuals are not explicitly banned from owning cryptocurrencies, but the implication is made that ownership and participation in the crypto-market could become illegal in the future. In early December 2019, the Indian government announced it will be examining the issues surrounding the prohibition of cryptocurrency in India, but is yet to announce a succinct timeline for a decision.

Japan

In Japan, crypto regulations are changing rapidly. At present, Cryptocurrencies are legal to own, and exchanges are allowed to operate so long as they register with the Financial Services Agency. In mid-2019, amendments were made to the crypto asset regulations in Japan, effective by spring 2020. Key changes will include:

  • Crypto asset margin trading and other crypto asset derivative transactions will become subject to Japanese regulations on derivative transactions.
  • Certain crypto assets distributed through blockchain will be regulated as Type I securities. The solicitation and offering of crypto assets, such as Initial Coin Offerings (ICOs), will require careful review and structuring to meet regulations.
  • Crypto asset trading will be subjected to prohibitions on unfair trading and practices.
  • Crypto asset-related custodial activities will be subject to licensing.

Japan is a leader in the global regulation of cryptocurrencies, and many South Asian countries will follow Japan’s lead. Their regulatory framework is becoming more sophisticated and is beginning to recognize cryptocurrencies as a unique asset class.

Malta

Malta is a small jurisdiction, but it is perhaps the nation that has been most affected by the new age of crypto. Through progressive regulation and heavy promotion, Malta has positioned itself at the forefront of crypto adoption, providing a symbiotic regulatory framework that has enticed large-scale crypto exchanges like Binance and OKex to move their operations to the small island country.

In Malta, cryptocurrencies are recognized as “a medium of exchange, a unit of account, or a store of value”, and the nation has developed a succinct and detailed set of regulations via its “Digital Innovation Framework”. In addition to the Digital Innovation Framework, Malta has proposed extensive cryptocurrency tax legislation, but these rules are still in their preliminary stages. 

Exchanges in the country are required to meet stringent Anti-Money-Laundering (AML) and Countering the Funding of Terrorism (CFT) laws. Exchanges are encouraged to work alongside regulators to foster a safe and cooperative framework that is designed to work with crypto exchange businesses on an unprecedented level, making Malta a world leader in the proliferation of the crypto industry.

United States of America

The US is perhaps one of the most fragmented nations when it comes to the regulation of cryptocurrencies. Regulation on a federal level exists and is facilitated by a consortium of American regulatory bodies such as the Commodities Futures Trading Commission (CFTC), Securities Exchange Commission (SEC), Financial Crimes Enforcement Network (FinCEN),  and the Internal Revenue Service (IRS). Regulation on a state-levelalso exists, sometimes contradicting federal regulations, or in some cases, operating beyond the ambiguous frameworks currently being developed federally, especially with regard to money transmitting licensing.  

Generally speaking, cryptocurrencies are treated as securities in the US under the context of transmission licensing, token offerings and speculative investments. With regard to taxation or consumer purchases, cryptos are viewed as property (not legal tender), and therefore subjected to Capital Gains Tax laws governed by the IRS. 

Exchanges and crypto-custodians are held to AML and KYC rules via the Bank Secrecy Act (BSA), under the watchful eye of FinCEN and the CFTC, and are required to register with the SEC prior to operation. 

Regulations Are Far From Cohesive

As we can see, the regulatory landscape differs greatly across the most influential jurisdictions in the world today. It appears as though many of the most developed nations are moving crypto into the established frameworks originally built for securities – a move that most crypto-pundits believe to be near-sighted. Luckily, the trend is starting to lean toward more narrowly-focused regulations that are specific to crypto, as exemplified by countries like Canada and Japan. Developing nations, such as Argentina and Brazil, are still lagging behind, but adoption is now soaring in these countries and it is likely we will see these governments begin to address crypto more directly (and with greater scrutiny) as they try and turn crypto gains into tax revenue. China and India clearly recognize the potential of crypto tech for the financial sector, but they seem to prefer outright banning existing cryptocurrency markets in favor of the domestic development of their own crypto technologies, a move that implies cryptocurrency market regulations may never reach a global consensus. 

Disclaimer: information contained herein is provided without considering your personal circumstances, therefore should not be construed as financial advice, investment recommendation or an offer of, or solicitation for, any transactions in cryptocurrencies.



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