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As the market capitalization of the cryptocurrency market shoots up, through price movements and a surge in new tokens, regulators around the world are stepping up the debate on oversight into the use and trading of digital assets.
This affects all cryptocurrencies, but especially bitcoin, given its market leadership and integration into the global startup ecosystem.
Very few countries have gone as far as to declare bitcoin illegal. That does not, however, mean that bitcoin is “legal tender” – so far, only Japan has gone as far as to give bitcoin that designation. However, just because something isn’t legal tender, does not mean that it cannot be used for payment – it just means that there are no protections for either the consumer or the merchant, and that its use as payment is completely discretionary.
Other jurisdictions are still mulling what steps to take. The approaches vary: some smaller nations such as Zimbabwe have few qualms about making brash pronouncements casting doubts on bitcoin’s legality. Larger institutions, such as the European Commission, recognize the need for dialogue and deliberation, while the European Central Bank (ECB) believes that cryptocurrencies are not yet mature enough for regulation (although with bitcoin almost 10 years old, one is left wondering when we will know it has reached sufficient maturity). In the United States, the issue is complicated further by the fractured regulatory map – who would do the legislating, the federal government or individual states?
A related question in other countries, to which there is not yet a clear answer, is: should central banks keep an eye cryptocurrencies, or financial regulators? In some countries they are one and the same thing, but in most developed nations, they are separate institutions with distinct remits.
Another divisive issue is: should bitcoin be regulated on a national or international basis? France is pushing for the G20 (an international forum for governments and central banks) to discuss establishing parameters at the upcoming summit in April 2018.
A further distinction needs to be made between regulation of the cryptocurrency itself (is it a commodity or a currency, is it legal tender?) and cryptocurrency businesses (are they money transmitters, do they need licenses?). In a few countries the considerations are tied together – in most others, they have been dealt with separately.
Below is a brief summary of pronouncements made by certain countries. This list is updated monthly.
In October 2017, the Australian Senate began debating a bill that would apply anti-money laundering statutes to the country’s cryptocurrency exchanges, as well as mandate criminal charges for exchanges that operate without a license.
That same month, the tax authorities removed the “double taxation” of bitcoin, which was a result of a decision in 2014 to treat the cryptocurrency as a “bartered good” rather than a currency or asset.
As of the end of 2017, cryptocurrency exchanges have to register with the country’s financial intelligence agency Austrac, and comply with customer verification and record preservation requirements.
Further moves are unlikely for now, however, as officials from the central bank recently said that regulation is not needed for the use of cryptocurrencies as payment.
In spite of a strong bitcoin ecosystem, Argentina has not yet drawn up regulations for the cryptocurrency, although the central bank has issued official warnings of the risks involved.
In 2015, Bangladesh expressly declared that using cryptocurrencies was a “punishable offence.”
In 2014, the central bank of Bolivia officially banned the use of any currency or tokens not issued by the government.
Canada was one of the first countries to draw up what could be considered “bitcoin legislation,” with the passage of Bill C-31 in 2014, which designated “virtual currency businesses” as “money service businesses,” compelling them to comply with anti-money laundering and know-your-client requirements.
The government has specified that bitcoin is not legal tender, and the country’s tax authority has deemed bitcoin transactions taxable, depending on the type of activity.
While China has not banned bitcoin (and insists it has no plans to do so), it has cracked down on bitcoin exchanges and appears to be withdrawing preferential treatment (tax deductions and cheap electricity) for bitcoin miners.
In 2014, the National Assembly of Ecuador banned bitcoin and decentralized digital currencies while establishing guidelines for the creation of a new, state-run currency.
The European Union is taking a cautious approach to cryptocurrency regulation, with several initiatives underway to involve sector participants in the drafting of supportive rules. The focus appears to be on learning before regulating, while boosting innovation and taking into account the needs of the ecosystem.
The European Central Bank (ECB), however, is pushing for tighter control over movements of digital currencies as part of a broader crackdown on money laundering, while recognizing the jurisdictional complexities in regulating an asset with no boundaries. In late in 2017, an ECB official stated that the institution did not see bitcoin as a threat, and president Mario Draghi recently confirmed that, in the eyes of the ECB, bitcoin was not “mature enough” for regulation.
The Indian central bank has issued a couple of official warnings on bitcoin, and at the end of 2017 the country’s finance minister clarified in an interview that bitcoin is not legal tender. The government does not yet have any regulations that cover cryptocurrencies, although it is looking at recommendations.
Japan was the first country to expressly declare bitcoin “legal tender,” passing a law in early 2017 that also brought bitcoin exchanges under anti-money laundering and know-your-customer rules.
The central bank of Kyrgyzstan declared in 2014 that using cyrptocurrencies for transactions was against the law.
Malaysia’s Securities Commission is working together with the country’s central bank on a cryptocurrency regulation framework.
In 2014, Mexico’s central bank issued a statement blocking banks from dealing in virtual currencies. The following year, the finance ministry clarified that, although bitcoin was not “legal tender,” it could be used as payment and therefore was subject to the same anti-money laundering restrictions as cash and precious metals.
At the end of 2017, Mexico’s national legislature approved a bill that would bring local bitcoin exchanges under the oversight of the central bank.
Towards the end of 2017, Morocco’s foreign exchange authority declared that the use of cryptocurrencies within the country violated foreign exchange regulations and would be met with penalties.
Namibia is one of the few countries to have expressly declared that purchases with bitcoin are “illegal.”
While Nigerian banks are prohibited from handling virtual currencies, the central bank is working on a white paper which will draft its official stance on use of cryptocurrencies as a payment method.
Draft cryptocurrency legislation from the State Duma’s financial regulator is expected in March 2018. The focus appears to be on protecting citizens from scams, while allowing individuals and businesses to work legally with cryptocurrencies.
The efforts of the State Duma have been bolstered by a mandate from Putin himself, issued in October 2017, urging development of a “single payment space” within the Eurasian Economic Union (an alliance of countries including Armenia, Belarus and others), increased scrutiny of token sales, as well as licensing of bitcoin mining operations.
In early 2018, South Korea banned anonymous virtual currency accounts. And in an effort to curb cryptocurrency speculation, the authorities are contemplating a crackdown on exchanges.
In an interesting shift in strategy, a recent report in the South Korean press indicated that the country’s financial authorities are in talks with similar agencies in Japan and China over joint oversight of cryptocurrency investment.
In 2017, the South Africa Reserve Bank implemented a “sandbox approach,” testing draft bitcoin and cryptocurrency regulation with a selected handful of startups.
Singapore has no plans to regulate cryptocurrencies for now, but has reassured the market that it will be keeping an eye on the risks. The central bank, however, is working on a regulatory framework for bitcoin payments, and has issued warnings on bitcoin investments.
After allegedly declaring bitcoin illegal, the Bank of Thailand issued a backtracking statement in 2014, clarifying that it is not legal tender (but not technically illegal), and warning of the risks.
For now, cryptocurrency exchanges are not regulated.
United States of America
The U.S. is plagued by a fragmented regulatory system, with legislators at both the state and the federal level responsible for layered jurisdictions and a complex separation of powers.
Some states are more advanced than others in cryptocurrency oversight. New York, for instance, unveiled the controversial BitLicense in 2015, granting bitcoin businesses the official go-ahead to operate in the state (many startups pulled out of the state altogether rather than comply with the expensive requirements). In mid-2017, Washington passed a bill that applied money transmitter laws to bitcoin exchanges.
New Hampshire requires bitcoin sellers to get a money transmitter license and post a $100,000 bond. In Texas, the state securities commission is monitoring (and, on occasion, shutting down) bitcoin-related investment opportunities. And California is in bitcoin regulation limbo after freezing progress on Bill 1326 which – while criticized for issues such as overly broad definitions – was seen as less oppressive than New York’s BitLicense.
At the federal level, the Securities and Exchange Commission’s focus has been on the use of blockchain assets as securities, such as whether or not certain bitcoin investment funds should be sold to the public, and whether or not a certain offering is fraud.
The Commodities Futures Trading Commission (CFTC) has a bigger potential footprint in bitcoin regulation, given its designation of the cryptocurrency as a “commodity.” While it has yet to draw up comprehensive bitcoin regulations, its recent efforts have focused on monitoring the nascent futures market. It has also filed charges in several bitcoin-related schemes, which underlines its intent to exercise jurisdiction over cryptocurrencies whenever it suspects there may be fraud.
The Uniform Law Commission, a non-profit association that aims to bring clarity and cohesion to state legislation, has drafted the Uniform Regulation of Virtual Currency Business Act, which several states are contemplating introducing in upcoming legislative sessions. The Act aims to spell out which virtual currency activities are money transmission businesses, and what type of license they would require. Critics fear it too closely resembles the New York BitLicense.
Britain’s Financial Conduct Authority (FCA) sees bitcoin as a “commodity,” and therefore does plan to regulate it. It has hinted, however, that it will step in to oversee bitcoin-related derivatives. This lack of consumer protection has been behind recent FCA warnings on the risks inherent in cryptocurrencies.
The government of Ukraine has created a working group composed of regulators from various branches to draft cryptocurrency regulation proposals, including the determination of which agencies will have oversight and access. Also, a bill already before the legislature would bring cryptocurrency exchanges under the jurisdiction of the central bank.
Late in 2017, a senior official from Zimbabwe’s central bank stated that bitcoin was not “actually legal.” While the extent to which it can and cannot be used is not yet clear, the central bank is apparently undertaking research to determine the risks.