Cryptocurrency Regulations: What You Need to Know

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By A D

Cryptocurrency has arguably reached every region in the world, expanding its space exponentially. The advantages and broad scope it adds to the financial world is hard to ignore. With advantageous features like decentralisation and advanced transactional efficiency, the financial system’s outlook has an improved perspective. The first known cryptocurrency, Bitcoin, is expected to achieve a market size of $132.91 billion globally by 2030. The overall crypto market valuation is predicted to reach $4.94 billion by 2030.

The financial space cryptocurrency has created has given way to undeniably impressive operational efficiency, transactional transparency, capital optimisation and advanced security. It’s ever evolving potential and enticing opportunities have pushed limits of economic growth. A widespread community and extending capacity have also brought forth a summary of debatable criticisms and opinions. Cryptocurrency has had its fair share of controversies, ranging from doubts over its authenticity to its environmental implications. One that has garnered the most attention has been the discussion around the regulation of cryptocurrency, with even scholars and governments weighing in.

Decentralised finance is carefully designed to eliminate intermediation by authoritative institutions, creating a convenient and equal user-controlled platform. The question of regulation in this otherwise free and shared system came from the alarming rise in instances of hacking and malpractices the field. Sure, being equipped with blockchain technology, smart contracts and autonomy make for a secure and impactful applications but DeFi apps have recently been notorious for not being fully decentralised. Many applications only impersonate a set code all while maintaining custody over assets and procedures. This raises concerns for risk of money laundering and related crimes.

Read: The Short History of Crypto Scams

Although cryptocurrencies have been around for over a decade now, the regulation of this emerging asset class has been slow to catch up. While many countries have developed a regulatory framework for these digital assets, others are still in the process of doing so. Some countries have embraced crypto, recognizing their potential and promoting their development. Other countries have taken a more cautious approach, concerned about the potential risks.

KYC has been a constant requirement across almost all frameworks around the globe. Image Courtesy: seon
  • United States: The US government is writing and updating legislation to further integrate cryptocurrencies despite already having a set of laws and regulations governing digital assets. In the US, cryptocurrencies are generally legal. In general, people have little trouble purchasing and owning them. Numerous financial institutions, including USAA, Ally, Bank of America, Wells Fargo, Chase, Chime, and Simple, allow customers to buy and sell cryptocurrencies. It is governed by a number of federal government entities as well as state and municipal officials. State-by-state regulations differ, while the SEC, CTFC, and FinCEN serve as federal regulators. Infact more than 1% of all bitcoins ever issued, 241,000 BTC, are held by the US government.
  • Canada: TFederal regulations in Canada cover areas such as anti-money laundering (AML) and terrorist financing, with cryptocurrency exchanges being required to register as money services businesses and adhere to certain reporting and record-keeping requirements. The provincial regulatory framework focuses on securities laws, with some provinces taking a more cautious approach than others. The Canadian government has also created a regulatory sandbox program to encourage innovation in the fintech industry, including in the area of cryptocurrency and blockchain technology. The Canada Revenue Agency (CRA) treats cryptocurrencies as commodities for tax purposes. The CRA has also provided guidance on how to report cryptocurrency holdings on your tax return, including the requirement to report foreign holdings of cryptocurrencies if the total cost of those holdings exceeds CAD 100,000.
  • United Kingdom: The UK’s regulatory framework for cryptocurrencies is designed to prevent money laundering and terrorist financing, protect consumers, and promote innovation in the fintech industry. The Financial Conduct Authority (FCA) is the UK’s primary regulator for cryptocurrency-related activities. The FCA requires cryptocurrency exchanges to register with them and comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations. The FCA also requires that cryptocurrency exchanges and wallet providers implement strict security measures to protect their customers’ assets. In terms of taxation, the UK treats cryptocurrencies as assets for tax purposes. This means that any gains or losses made from buying and selling cryptocurrencies are subject to capital gains tax. The tax rate for capital gains depends on the individual’s tax bracket and the amount of gains made.
  • Japan: Japan has a comprehensive regulatory framework for cryptocurrencies, which has been in place since 2017. The regulatory framework is overseen by the Financial Services Agency (FSA), which requires cryptocurrency exchanges to register with them and comply with strict security and AML/CFT measures. In terms of taxation, Japan treats cryptocurrencies as assets for tax purposes. he tax rate for capital gains depends on the individual’s income level. However, there are also some tax breaks available for cryptocurrency users in Japan. Additionally, there is currently no consumption tax on the purchase of cryptocurrencies in Japan.
  • Australia: Cryptocurrency exchanges in Australia are required to register with the Australian Transaction Reports and Analysis Centre (AUSTRAC) and comply with government AML/CTF reporting obligations. In terms of taxation, the Australian Taxation Office (ATO) treats cryptocurrencies as property for tax purposes. The tax rate for capital gains depends on the individual’s income level and the amount of gains made. The ATO has also provided guidance on how to report cryptocurrency holdings and transactions on tax returns. For example, if an individual receives cryptocurrency as payment for goods or services, the value of the cryptocurrency at the time of the transaction must be reported as income. Similarly, if an individual uses cryptocurrency to purchase goods or services, they may be subject to GST.
  • Singapore: The regulatory framework is overseen by the Monetary Authority of Singapore (MAS), which requires cryptocurrency exchanges to register with them and comply with strict AML/CFT measures.In January 2022, the MAS introduced new regulations that require cryptocurrency service providers to obtain a license before they can operate in Singapore. The regulations also require service providers to comply with strict security and AML/CFT measures, and to report any suspicious transactions to the authorities. In terms of taxation, Singapore treats cryptocurrencies as goods rather than currency for tax purposes.
  • South Korea: In September 2021, the country’s Financial Services Commission (FSC) announced new regulations that would require all cryptocurrency exchanges to register with the government and comply with AML/CFT measures. outh Korea has also implemented regulations around initial coin offerings (ICOs), with the country’s financial regulator, the Financial Supervisory Service (FSS), banning all ICOs in September 2017 due to concerns around fraud and speculation. In terms of taxation, South Korea treats cryptocurrencies as assets rather than currency for tax purposes, with a tax rate of up to 20% for individuals and 25% for corporations. Despite the regulatory framework, South Korea remains one of the largest cryptocurrency markets in the world. According to a report by Chainalysis, South Korea ranked fourth globally in terms of cryptocurrency adoption in 2020, with a total transaction value of over $53 billion.
  • India: The Indian government has been considering a bill that would introduce a regulatory framework for cryptocurrencies since 2019. The bill, known as the “Cryptocurrency and Regulation of Official Digital Currency Bill, 2021”, was listed for discussion in the budget session of parliament in January 2021, but has yet to be passed into law. The bill proposes a ban on all private cryptocurrencies in India, while also allowing for the creation of a central bank digital currency (CBDC) that would be regulated by the Reserve Bank of India (RBI). In terms of taxation, the Indian government treats cryptocurrencies as assets rather than currency for tax purposes, with a tax rate of up to 30% for individuals and 40% for corporations. Despite the lack of a clear regulatory framework, India ranked 11th globally in terms of cryptocurrency adoption in 2020, with a total transaction value of over $40 billion.
  • Brazil: The President of Brazil signed a bill creating a regulatory framework for cryptocurrency exchanges in August 2021. The regulatory framework included in the bill aims to prevent money laundering and terrorist financing by requiring crypto exchanges to implement KYC (know your customer) and AML (anti-money laundering) procedures, as well as obtaining a “virtual service provider” license from the Brazilian Central Bank. The Brazilian government considers cryptocurrencies as goods rather than currency, tax rate varying from 15% to 22.5%, depending on the amount of the transaction.
  • European Union: Crypto regulations in the European Union aim to prevent money laundering and terrorist financing by requiring cryptocurrency exchanges and custodian wallet providers to implement KYC (know your customer) and AML (anti-money laundering) procedures.In terms of taxation, the EU has not yet implemented a unified approach to cryptocurrency taxation, and each member state is responsible for setting its own tax policies. However, most member states currently tax cryptocurrency transactions as either income or capital gains, depending on the nature of the transaction.
Cryptocurrency is slowly but surely becoming a global phenomenon
As the adoption of cryptocurrency breaks boundaries, the need for a regulated operation becomes even more critical.
Image Courtesy :chainanalysis

Regulation of cryptocurrencies can bring many benefits. First, regulation can provide greater certainty and stability to the cryptocurrency market, which can encourage more mainstream adoption. Second, regulation cold help to protect consumers by providing clear rules for companies to follow and enforcing penalties for faudulent behaviour. Third, regulation can help prevent money laundering, terrorism financing, and other illivit activities.

Along with benefits, there are also challenges. Being decentralised at core, it is difficult for regulators to enforce rules. Cryptocurrencies have a global nature to them that can make it challenging to develop a consistent regulatory framework across different countries. As the concept is constantly evolving, regulatory frameworks need to be adaptable and flexible. The market continues to mature, and it will be important for regulators to strike the right balance between innovation and protection.

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