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The growth of cryptocurrency from speculative investment to a new asset class has prompted governments around the world to explore ways to regulate it. As of January 2024, some governments have created frameworks to provide protection for users, while others bide their time.
Key Takeaways
- 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.
- The U.S. is slowly approaching regulation, but users, issuers, businesses, and regulators are busy battling it out in the court system.
- In other countries, cryptocurrency is subject to different classifications and tax treatment.
United States
The U.S. announced a new framework in 2022 that opened the door to further regulation. The new directive handed power to existing market regulators such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC).
The SEC is already regulating the sector, demonstrated by its lengthy list of filings against crypto-centric businesses and projects, such as lawsuits and complaints against Ripple, Coinbase (COIN), Binance (BNB), and many others over their crypto products and services.
But in 2023, a district court of appeals decided that Ripple’s sale of XRP were securities offerings only when sold to institutions, not when they were sold on exchanges. This was one partial victory for the crypto industry—it was followed by another decision in November that vacated the Commission’s denial of Grayscal’s application to convert its Bitcoin ETF Trust to an ETF that holds bitcoin. The court ordered the Commission to re-review the application, which eventually led to the approval of the first Bitcoin Spot ETFs in January 2024.
The continuous fight between regulators, broker-dealers, investors, and the crypto industry shows that the U.S. is still evolving, regardless of the frameworks introduced and the powers given to regulators.
As SEC chair Gary Gensler stated, the fight will likely continue, “It [the approvals] should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities. Nor does the approval signal anything about the Commission’s views as to the status of other crypto assets under the federal securities laws or about the current state of non-compliance of certain crypto asset market participants with the federal securities laws. As I’ve said in the past, and without prejudging any one crypto asset, the vast majority of crypto assets are investment contracts and thus subject to the federal securities laws…While we approved the listing and trading of certain spot bitcoin ETP shares today, we did not approve or endorse bitcoin.”
Central Bank Digital Currencies (CBDCs) are issued by central banks and backed by governments. Cryptocurrencies are decentralized by definition and are not cryptocurrencies, so CBDCs are not discussed in this article.
China
The People’s Bank of China (PBOC) bans crypto enterprises from operating in the country, stating that they facilitate public financing without approval.
Furthermore, China banned 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.
Canada
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.
United Kingdom
In October 2022, the lower house of the British Parliament recognized crypto assets as regulated financial instruments. The Financial Services and Markets bill became an act (law) in June of 2023 and extended existing laws regarding all crypto assets, services, and providers.
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.
Crypto derivatives trading is banned in the U.K.
Crypto exchanges and custodian wallet providers must comply with the reporting obligations of 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.
Japan
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 allow for the collection of customer information.
Australia
Australia classifies cryptocurrencies as legal property, subjecting them 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). It 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). In October 2023, the Australian treasury announced plans to introduce a regulatory framework, with a draft to be released sometime in 2024. There will be a 12-month transitionary period if the framework is approved and implemented.
Singapore
Like the U.K., this island state classifies cryptocurrency as property but not legal tender. The Monetary Authority of Singapore (MAS) licenses and regulates exchanges as outlined in the Payment Services Act (PSA).
Singapore issued guidance in 2022 warning digital payment token (DPT) providers to avoid advertising their services to the public.
In August 2023, the Monetary Authority of Singapore (MAS) announced a framework that would regulate stablecoin issues in the country, requiring any issuers to conform to specific criteria. Stablecoins must be approved by the MAS to be allowed to use the label “MAS-regulated stablecoin” to distinguish themselves from non-regulated stablecoins.
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.
South Korea
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 2023, the South Korean government’s Act on the Protection of Virtual Asset Users went into effect. The Act officially appointed the Financial Services Commission as a regulator for virtual assets and outlined their legal and illegal uses. Additionally, the Act ensured user protection by requiring issuers or service providers to follow certain practices.
India
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. The country’s Finance Bill of 2022 defined virtual digital assets as property and outlined tax requirements for collecting taxes on income from them.
Brazil
Bitcoin is not 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 a means of payment in the country on Nov. 29, 2022.
The bill was enacted as a law and entered into force on June 20, 2023, as Law No. 14,478, “Legal Framework for Virtual Assets”. The Brazilian Central Bank was designated the competent authority to regulate, authorize, and supervise operations of crypto exchanges, pursuant to Decree No. 11,563 of June 13, 2023.
European Union
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 and ranges from 0% to about 48%.
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 explicit crypto industry conduct, and introduces new licensing requirements.
In April 2023, Parliament approved measures that allow legislation requiring certain crypto service providers to seek an operating license. MiCA was provisionally agreed on in 2022 and placed into effect in July 2023. This legislation is intended to give regulators the tools they need to track crypto being used for money laundering and terrorism funding while providing users with protections.
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 in effect governing crypto service providers.
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, the 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 globally 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.
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