The growth of cryptocurrency from speculative investment to a new asset class has prompted governments around the world to explore ways to regulate it. Below, we summarize the current digital currency regulatory landscape in several countries.
- As cryptocurrency has become a more significant factor in the global investment landscape, countries have taken different approaches to regulating the asset class.
- The European Union became the first to adopt measures requiring crypto service providers to detect and stop illicit cryptocurrency uses.
- In the United States, the Biden administration clarified crypto use and regulation in 2022, paving the way for the digital dollar.
- In other countries, cryptocurrency is subject to different classifications and tax treatment.
The U.S. announced a new framework in 2022 that opened the door to further regulation. The new directive has handed power to existing market regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The SEC has already moved toward regulating the sector with its widely publicized lawsuit against Ripple, alleging that it raised more than $1.3 billion by selling its native token, XRP, in unregistered securities transactions. More recently, the SEC has been targeting exchanges such as Coinbase (COIN) and Binance (BNB) over their crypto products. SEC Chairman Gary Gensler has been vocal about the cryptocurrency and has referred to it as “a Wild West.”
“Nothing about the crypto markets is incompatible with the securities law,” Gensler said. “Investor protection is just as relevant, regardless of underlying technologies.”
We will likely see U.S. regulators coming down hard on cryptocurrency in the coming years to slow the continuous arrival of new coins. The outcome of the SEC’s suit against Ripple Labs, and its efforts to regulate crypto exchanges, is likely to determine whether cryptocurrencies can be classed as securities.
White House Is Looking to Clean Up Illegal Activity
One of the issues the Biden administration seeks to tackle is illegal cryptocurrency activity.
“The president will evaluate whether to call upon Congress to amend the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmitting to apply explicitly to digital asset service providers—including digital asset exchanges and non-fungible token (NFT) platforms,” according to the new framework.
The plan also states that the U.S. “Treasury will complete an illicit finance risk assessment on decentralized finance by the end of February 2023 and an assessment on non-fungible tokens by July 2023.”
Previous statements from Federal Reserve officials have discussed systemic risks arising from stablecoins. That focus will likely gain importance in light of the 2022 Terra stablecoin collapse, which cost investors $60 billion.
Pathway Is Open to a Digital Dollar
The Biden administration’s new framework also sees “significant benefits” from creating a central bank digital currency (CBDC) or a digital form of the U.S. dollar.
Federal Reserve Chairman Jerome Powell has remarked that the key reason to release a CBDC would be to eliminate the need for alternative coin use in the country.
“You wouldn’t need stablecoins; you wouldn’t need cryptocurrencies if you had a digital U.S. currency,” Powell said in congressional testimony. “I think that’s one of the stronger arguments in its favor.”
China classifies cryptocurrencies as property for the purposes of determining inheritances. The People’s Bank of China (PBOC) bans crypto exchanges from operating in the country, stating that they facilitate public financing without approval.
Furthermore, China placed a ban on Bitcoin mining in May 2021, forcing many engaging in the activity to close operations entirely or relocate to jurisdictions with a more favorable regulatory environment. And in September 2021, cryptocurrencies were banned outright.
However, the country has been working on developing the digital yuan (e-CNY). In August 2022, it officially began rolling out the next round of its central bank digital currency (CBDC) pilot test program.
While crypto is not considered legal tender in Canada, the country has been more proactive than others about crypto regulation. Canada became the first country to approve a Bitcoin exchange-traded fund (ETF), with several trading on the Toronto Stock Exchange.
As for crypto trading platforms, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) require that crypto trading platforms and dealers in the country register with provincial regulators.
Canada classifies all crypto investment firms as money service businesses (MSBs) and requires that they register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). From a taxation standpoint, Canada treats cryptocurrency similarly to other commodities.
While there are no cryptocurrency-specific laws in the U.K., the country considers cryptocurrency as property (not legal tender), and crypto exchanges must register with the U.K. Financial Conduct Authority (FCA). Crypto derivatives trading is banned in the U.K. as well. There are cryptocurrency-specific reporting requirements relating to know your client (KYC) standards, as well as anti-money laundering (AML) and combating the financing of terrorism (CFT). Although investors still pay capital gains tax on crypto trading profits, more broadly, taxability depends on the crypto activities undertaken and who engages in the transaction.
As of Aug. 30, 2022, crypto exchange and custodian wallet providers must comply with the reporting obligations implemented by the Office of Financial Sanctions Implementation (OFSI). Crypto firms must notify the OFSI as soon as possible if they know or have reasonable suspicion that a person is subject to sanctions or has committed a financial sanctions offense.
In October 2022, the lower house of the British Parliament recognized crypto assets as regulated financial instruments. The draft bill extends current laws regarding payments-focused instruments to stablecoins.
Japan takes a progressive approach to crypto regulations, recognizing cryptocurrencies as legal property under the Payment Services Act (PSA). Meanwhile, crypto exchanges in the country must register with the Financial Services Agency (FSA) and comply with AML/CFT obligations. Japan established the Japanese Virtual Currency Exchange Association (JVCEA) in 2020, and all crypto exchanges are members. Japan treats trading gains generated from cryptocurrency as miscellaneous income and taxes investors accordingly.
The country has been working on several aspects when it comes to regulation, including taxation. In September 2022, the government announced it would introduce remittance rules as early as May 2023 to prevent criminals from using cryptocurrency exchanges to launder money. The Act on Prevention of Transfer of Criminal Proceeds will be revised to collect customer information.
Australia classifies cryptocurrencies as legal property, making them subject to capital gains tax. Exchanges are free to operate in the country, provided that they register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and meet specific AML/CTF obligations.
In 2019, the Australian Securities and Investments Commission (ASIC) introduced regulatory requirements for initial coin offerings (ICOs) and banned exchanges from offering privacy coins, which are cryptocurrencies that preserve anonymity by obscuring the flow of money across their networks. In 2021, Australia announced plans to create a licensing framework around cryptocurrency and potentially launch a central bank digital currency (CBDC).
Like the U.K., this island state classifies cryptocurrency as property but not legal tender. The country’s Monetary Authority of Singapore (MAS) licenses and regulates exchanges as outlined in the Payment Services Act (PSA).
Singapore, in part, gets its reputation as a cryptocurrency safe haven because long-term capital gains are not taxed. However, the country taxes companies that regularly transact in cryptocurrency, treating gains as income.
Singapore issued guidance in 2022 warning digital payment token (DPT) providers to avoid advertising their services to the public.
In South Korea, cryptocurrency exchanges and other virtual asset service providers must register with the Korea Financial Intelligence Unit (KFIU), a division of the Financial Services Commission (FSC). South Korea also banned all privacy coins from exchanges in 2021.
In 2021, the country’s Parliament approved a 20% tax on digital assets to take effect in 2022, but it has been delayed until 2025. The government is working on the Digital Asset Basic Act, which might take shape by the first half of 2023.
India remains on the fence regarding crypto regulation, neither legalizing nor penalizing its use. There is a bill in circulation that prohibits all private cryptocurrencies in India, but it has yet to be voted on. There is a 30% tax levied on all crypto investments and a 1% tax deduction at source (TDS) on crypto trades.
Overall, India continues to hesitate to ban crypto outright or to regulate it. Current regulations are unclear at best and don’t provide much guidance for investors. The country has been working on the digital version of the rupee and might launch it in the 2022–2023 fiscal year.
Bitcoin is not a legal tender in Brazil, but the country passed a law legalizing cryptocurrencies as payment methods throughout the country, boosting the adoption of digital currencies. Brazil’s Chamber of Deputies approved a regulatory framework legalizing the use of cryptocurrencies as means of payment in the country on Nov. 29, 2022.
The bill does not make cryptocurrencies legal tender in the country. The bill, however, will include digital currencies and air mileage programs under its definition of payment methods. The government’s executive branch will decide which office will be responsible for monitoring the law after it is enacted. Tokens considered securities would remain under the Brazilian Securities and Exchange Commission (CVM) jurisdiction.
Cryptocurrency is legal throughout most of the European Union (EU), although exchange governance depends on individual member states. Meanwhile, taxation also varies by country within the EU, ranging from 0% to 50%.
Recently, the EU’s Fifth and Sixth Anti-Money Laundering Directives (5AMLD and 6AMLD) have come into effect, tightening KYC/CFT obligations and standard reporting requirements. In September 2020, the European Commission proposed the Markets in Crypto-Assets Regulation (MiCA)—a framework that increases consumer protections, establishes clear crypto industry conduct, and introduces new licensing requirements. It was provisionally agreed on in 2022.
In April 2023, Parliament approved measures that allow legislation requiring certain crypto service providers to seek an operating license. This legislation is intended to give regulators the tools they need to track crypto being used for money laundering and terrorism funding.
Are There Any Regulations on Crypto?
Cryptocurrency regulations are still being researched and developed worldwide. Many countries are creating policies and legislation, while others lag for various reasons.
What Year Will Crypto be Regulated?
Partial regulation exists in some countries, with others taking steps to regulate as much of the space as possible. For example, crypto exchanges in the U.S. are subject to regulations. In the EU, laws are developing requiring crypto service providers to identify illicit crypto uses.
Who Is the Crypto Regulator?
In the U.S., who regulates crypto depends on how and where it is used. The Securities and Exchange Commission, the Chicago Mercantile Exchange, Commodity Futures Trading Commission, and the Financial Industry Regulatory Authority are all involved in some regard. Cryptocurrency transactions between private users—private wallet to private wallet—are not regulated.
The Bottom Line
While cryptocurrency has existed since 2009, governments and regulators are still working out ways to govern its uses. Consumers and businesses must be protected from fraudulent activity, and preventative measures must be implemented to fight illicit crypto uses. Many countries are progressing, but it is a slow and controversial process.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.
(Jacob Wade contributed to this article.)