There has been a lot of action witnessed in the arena of regulation of cryptocurrencies in the last decade. Regulators across two continents have grappled with the legalistic complexities of defining and categorising crypto assets. In places, there has been more of a direct response, without an explicit legal-institutional framework underpinning the authorities intent. We attempt below an overview of cryptocurrency regulations obtained throughout the disparate spaces of the PRC, the EU, and large parts of Asia.
May 18, 2021, saw the re-issuance of restrictions by Chinese authorities discluding financial institutions and payment companies virtual currency-related services. Chinese citizens, now, stand banned from crypto trading. Moreover, payment companies, as well as financial institutions, are no longer permitted to accept crypto payments. Chinese authorities have ostensibly concluded that virtual currency is not in the same ballpark as fiat currency, given the ‘alarming’ features attributed to Bitcoin. The latter has no centralised issuer, anonymity, the fact of the crypto being unhindered geographically, the unlimited total amount.
The China Internet Finance Association recently asserted that the serious price fluctuations and associated unbridled speculation regarding cryptocurrency imperils people’s property and is generally a great disruptor of normalcy.
The Crackdown: Consequences
Following the Chinese action, the price of Bitcoin plummeted by 34%. China sees great propaganda value in the planned launch of its Digital Yuan ahead of the 2022 Beijing Winter Olympics.
China has not gone after cryptocurrencies institutionally. The ban attacks the idea of crypto trading but continues letting holders of cryptocurrencies be. The May action has merely reiterated the authorities stand vis cryptocurrencies. In practical terms, only mining operations were at the receiving end. The message is clear, without institutional-legal backing. Even though the ban might have little standing in Law, the coercive nature of the crackdown is perceived to be sufficient dissuasion to enterprising miners. That’s the modus operandi of authoritarian regimes.
Cryptocurrency regulations: the scene in Europe
In September 2020, the EC/European Commission issued a regulatory proposal entitled MiCA or the Markets in Crypto Assets.
MiCA provisions: precursor of regulatory control?
The EC has proposed a bespoke, mandatory regime under the aegis of MiCA. The ambitious framework will replace all national frameworks in the EU.legal harmonisation is a stated goal.
A brief overview of what MiCA strives for: uniform guiding principles for crypto assets
Affected fields will be – transparency and disclosure, authorisation and supervision, governance measures, consumer protection.
MiCA forges new ground in defining and classifying crypto assets. Again, a pragmatic consolidation of divergence in regulations across Europe is sought.
MiCA has identified three crypto-asset categories liable to be regulated. Besides, the proposed framework sets out a detailed requirement set aimed at crypto issuers, impacting topics such as licensing. Issuers outside of the EU will be drawn within the ambit of proposed regulations. The plus p[ointgg is that those who have a record of issuance within the EU are in good standing with the Law.
The EBA, or European Banking Authority, has been covered by the MiCA. The latter will be responsible for tougher capital, investor, and EBA supervisory requirements dealing with governance, conflicts of interest, reserve assets, custody and white paper obligations.
Heralding in a New Age: CASPs (crypto-asset services providers) in the EU
MiCA establishes a much-needed legal framework aimed at the authorisation and operating conditions of crypto-asset service providers, or CASPs. Any CASP will have to be EU-registered, entitled to operations only post-authorisation.
MiCA, therefore, brings legislative gravitas to cryptocurrency regulation, definitely answering a need of the hour.
Cryptocurrency regulation: Asia’s response
The Payment Services Act regulates cryptocurrency businesses operating in Japan. There’s a registration requirement, aside from requirements governing the keeping of records, taking security measures, and consumer protection. Cryptocurrency transitions law has to be in sync with the anti-money laundering law. The aforementioned Act has defined cryptocurrency as a property value. As per the Act, cryptocurrency is limited to electronically stored property values.
There’s perceived to be a very tangible linkage between crypto trading and money laundering. Therefore, exchanges in Korea are administering crypto trading in sync with anti-money laundering laws.
As per Taiwanese regulators, Bitcoin trading has no legal basis whatsoever. There are explicit strictures to contend with, in the event of financial institutions accepting bitcoin payments.
As per a 2014 Bank Negara Malaysia statement, bitcoin is not legal tender in Malaysia.
In 2013, the Monetary Authority of Singapore warned users of risks attendant upon bitcoin usage. However, it also washed its hands off of bitcoin payments made to financial institutions in Singapore, saying that these were ‘commercial transactions’ outside the regulator’s purview. As per tax regulations, bitcoin transactions in Singapore are taxed as part of a ‘barter exchange’.
This nation’s resp[onse has been far clearer, perhaps as an indicator of its authoritarian leanings. Crypto payments may be made upon the pain of massive penalties. The use of cryptos as a means of payment is therefore strictly prohibited. However, similar to China, there’s no outright legal-institutional ban on cryptocurrency reading when understood as trade in virtual assets.
This nation also ties crypto trading with anti-money laundering laws. All cryptocurrencies may be exchanged only against the Thai Baht.
Here, too, authorities have consistently taken a dim view of cryptocurrencies. There’s planned issuance of an RBI(Reserve Bank of India) backed digital currency, followed by a blanket ban on cryptocurrencies.
There’s an unequivocal, absolute ban on cryptocurrencies.
United Arab Emirates
This nation’s response has been more complex. There’s an absolute ban as per the country’s central bank. There has been a distinction made between commercial intent and virtual currencies transactions. The Dubai Multi Commodities Centre issues licenses for proprietary trading in crypto commodities.
ICOs or Initial Coin Offerings are not allowed. In late 2020 the Securities and Commodities Authority established a regulatory framework for offering, issuance, listing, and trading crypto assets. Crypto asset providers have to be incorporated within the UAE.
A number of complex factors have dictated China’s response to the cryptocurrency conundrum. Primary has been the authoritarian proclivity to impose the State’s will upon various domains. It is testimony to cryptocurrencies’ spectacular influence on China’s economy that the State has undertaken to restate its already explicit intentions. An important aspect is the control of energy resources since crypto mining within China has made Chinese electricity consumption undergo significant changes.
This ecological challenge has to be faced, so, on this point, China likely has Greenpeace’s approval. There’s no outright ban in the world’s second-largest economy. Buty the State will go on pressurising both mining and trading. The final nail in the cryptocurrencies’ coffin inside China will be the 2022 launch of the DIgital Yuan. This will presumably make traditional cryptocurrencies (within PRC) totally irrelevant.
Europe’s strategy has been relatively constructive, driven by the need for fuller integration across the board. The proposed framework is founded upon Law, rather than coercion.
Asia’s response on average has been to tie in cryptocurrency trading with the prevention of money laundering. Complex responses here and there differentiate between trading and ‘commercial’ transactions – thus leaving the door to official recognition open in powerhouses like the UAE and Singapore.