While some countries have entirely banned cryptocurrency, some have tried to partially regulate their flow in the economy. Outlook Business delves into the varied approaches adopted by different countries in regulating the digital asset.
At a time Cryptocurrency ecosystem stakeholders in India are keeping their fingers crossed, with a hope that India will come up with rules to regulate them instead of announcing a blanket ban, a statement by Prime Minister Narendra Modi has contributed to more suspense on the issue. In a virtual summit hosted by US president Joe Biden, Modi said that emerging technologies such as cryptocurrencies should be used to empower democracy, not undermine it. The statement comes at a time when the entire world is coming up with its own set of regulations to deal with the emerging asset class. While some countries have banned cryptocurrency entirely, others have tried to partially control their flow in the economy. Outlook Business looks at the way different countries in the world have tried to regulate cryptocurrencies.
The US has a dual system of governance, under which different states can have different laws for cryptocurrency. For instance, New York favours cryptocurrency and launched a licensing framework called ‘BitLicense’ for businesses and crypto exchanges back in 2016. Wyoming too, exempted the developers of cryptocurrencies from securities laws, if they met certain conditions in 2018. Many states in the US are yet to take a stance vis-à-vis cryptocurrencies.
Different states of the USA may hold varied regulations related to crypto, but the overall sentiment in the country remains positive towards the trading community.
The European Union has 27 member countries, and legislation at the Union level is a complicated matter. So far, countries in the EU have had their framework regulating this industry, with the majority of them going for a soft-touch regulatory framework. In September last year, the European Commission released draft legislation titled Markets in Crypto-Assets Regulation (MiCA) legislation. When this draft comes into effect, cryptocurrencies will be treated as regulated financial instruments by the legislation. This framework increases consumer protection, defines crypto industry conduct, and introduces new licensing requirements.
El Salvador became the first country to use bitcoin alongside the US dollar as legal tender in September 2021. The president of this South American country, Nayib Bukele has said Bitcoin may reduce poverty, and lead more people into digitalisation.
The United Kingdom has not formulated separate legislation regarding the regulation of cryptocurrency. The UK considers cryptocurrency as property, and not legal tender. Under the current system, the Financial Conduct Authority (FCA) regulates licensing to authorised cryptocurrency-related businesses, including crypto exchanges. FCA has a stringent set of rules, which all those seeking a licence have to comply with.
The UK gains taxes from crypto trading, like any other currency trading. Those businesses which are involved in cryptocurrency trading, including cryptocurrency exchanges themselves, have to comply with corporate tax rules.
China has changed its stance on Cryptocurrencies radically in the last few months. After allowing its citizens to trade or mine crypto coins in the initial years, it unleashed a crackdown on mining activities and banned the trade in June 2021. Those running Crypto infrastructure including exchanges had to move out their operations from the country. The country is developing a digital version of currency and is testing the centrally regulated crypto coin.
The country’s Securities & Exchange Commission (SEC) has drafted new rules for holding digital assets recently. The draft regulations seek to prohibit crypto custodians from extracting benefits from their clients' assets. In order to control the volatility in the crypto trade, the draft regulations would allow depositing a client's assets only at a commercial bank after agreeing on the interest rate with their client.