Cryptocurrency regulation remains a pending global issue. Despite the fact that the crypto market evolves exponentially, there are few countries with clear regulation in this regard. Companies and regulators coincide in pointing out the need for strict and thoughtful regulation for the widespread adoption of cryptocurrencies. However, the institutional structure of the most advanced economies seems not yet ready to adapt their current legislation to the frantic evolution of the cryptoeconomy.
Regulation of cryptocurrencies in the world
A report from Chainanalysis shows that the uses of cryptocurrencies are different in each region. In developing countries, the use of cryptocurrencies to send remittances and as a tool against inflation predominates. In developed countries its majority use is as an investment vehicle. As a consequence, regulations have been adapted according to the use of cryptocurrencies in each part of the world.
South America and Central America
South America and Central America are the regions where the regulation of cryptocurrencies has advanced the most in the last year. Due to the high inflation of local currencies in some countries, such as Venezuela and Argentina, many citizens have begun to deposit part of their savings in cryptocurrencies, such as bitcoin. They have even started using cryptocurrencies to make day-to-day purchases. Therefore, the regulations approved in most of these countries have focused on standardizing its use.
The clearest example is El Salvador. Last September, the country governed by Nayib Bukele became the first in the world to adopt bitcoin as legal tender. Therefore, the use of bitcoin in the Central American country is fully regulated. For two months, Salvadorans have been able to withdraw bitcoins from ATMs or pay with cryptocurrency in almost all establishments in the country.
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Despite the fact that Bukele’s measure provoked mixed reactions, it has served to boost the regulation of cryptocurrencies in the region. In Paraguay, a bill to regulate crypto assets was presented on July 14. Brazil, adopted a regulatory testing environment for the next 3 years, where cryptocurrencies are considered financial assets. The Argentine Parliament plans to have a crypto law ready before 2022. Colombia approved a regulatory sandbox that allows banks to connect cryptocurrencies with their current financial systems. In Mexico, cryptocurrencies are recognized as a legitimate means of payment and to carry out transactions. Other countries, such as Chile, still lack regulation.
Since Gary Gensler’s appointment as chairman of the United States Securities and Exchange Commission (SEC) in April 2021, the regulation of cryptocurrencies in the United States has taken on new momentum. Gensler, a former professor of Bitcoin and Blockchain at MIT, has repeatedly stressed in his public interventions that cryptocurrencies need to be regulated to survive. As a consequence, the SEC ensures that cryptocurrencies will not be prohibited but that it is necessary to regulate all activities related to them as soon as possible. In fact, this very week a debate on the regulation of bitcoin is taking place in the United States Congress.
However, the SEC has already taken the first steps in introducing bitcoin into the US Financial System with the approval on October 18 of the first bitcoin futures ETF. It is a publicly traded financial instrument that tracks bitcoin futures, not the cryptocurrency itself.
Europe has the largest crypto economy in the world, but it still has a long way to go in terms of regulation. The rigid institutional structure makes it difficult to establish clear laws that help promote the development of cryptocurrencies and, in turn, ensure financial stability. Currently, the European Union is already working on a regulatory framework for the cryptocurrency market known as MiCA (markets in crypto-assets).
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The main objective of the MiCA proposal, still in the draft phase, is to provide a common regulation on cryptocurrencies to the entire European Union. The objective of MiCA is to provide legal certainty to all participants in the crypto-asset market and guarantee financial stability, but without neglecting the promotion of innovation and the development of cryptocurrencies. MiCA also covers other Blockchain-based technologies, such as NFTs or stablecoins. The approval of this regulation is expected by the end of this year or the beginning of 2022.
In the case of Spain, despite the fact that, as in the rest of Europe, there is no specific regulatory framework, last May a Draft Law against Tax Fraud was approved that requires reporting on holding and operations with cryptocurrencies.
Regulation in Asia changes dramatically depending on the country. On the one hand, countries like China and India are totally opposed to the use of cryptocurrencies. In May this year, the Chinese government banned financial institutions from trading cryptocurrencies and eliminated mining for environmental reasons. This drastic move forced some of the biggest exchanges and mining companies to leave China. For its part, the Indian government intends to establish a law that prohibits cryptocurrencies and fine those who operate with them or have digital assets. A regulation that would be much more severe than that of China, but that seems to have been relaxed in recent months.
China’s ban increases the price of decentralized exchange tokens
On the other side of the scale, countries like Japan or the United Arab Emirates are pushing the use of cryptocurrencies through much more thoughtful regulation. In fact, Japan was one of the first countries in the world to allow cryptocurrency trading legally. In 2017, the country’s financial authority authorized 11 cryptocurrency platforms to provide regulated services in its territory. Likewise, the financial regulators of the United Arab Emirates allow trading cryptocurrencies in most tax-free zones in the country. Kiklabb or the Dubai Free Zone are some of the examples.
The instability of local currencies and the difficult access to financial services has meant that the cryptocurrency market in Africa has increased its value by 1,200% in 2021. However, although some countries such as Nigeria or South Africa have made progress in regulation, most African countries continue to bet on non-interference.
Nigeria will launch its CBDC “eNaira” at the end of the year
In Nigeria, the Central Bank and the Government are imposing strong regulations to ban cryptocurrencies in the country. However, Nigerian merchants continue to use crypto assets in a massive way to make payments, receive remittances or buy merchandise. For example, the Central Bank of Nigeria launched its own CBDC (central bank digital currency) in October, with the purpose of improving conditions in cross-border trade and collecting taxes more efficiently.
Lastly, South Africa’s rulers plan to introduce a structured regulatory framework, to help prevent the risks of investing in crypto assets and foster digital financial literacy among consumers.