State of regulation in other large markets:

Traditionally, regulators took a “wait and see” approach before committing to regulating cryptocurrency. With the boom in popularity of the cryptocurrency market and a large number of unregulated currencies, the environment is changing very rapidly.

Regulators around the world are now looking at how to regulate cryptocurrencies – this is new territory.

Why the focus on regulation?

There is a growing concern over the fear of criminal activities and investor interests. The threat of price volatility and hacking can cost investors a lot of money, and cryptocurrency can also serve as a platform for money laundering. Additionally, inherent in the economy of cryptocurrency is the systemic risk -left to grow uncontrolled, there is the possibility of destabilising the global financial system.

How are major markets reacting?

In general, the major Asian economies appear to have taken a hard stance on cryptocurrency. China appears to be the most stringent of the Asian economies in the regulation of cryptocurrencies, completely shutting down the operation of cryptocurrency exchanges. Japan and Korea are following closely behind, taking actions such as banning ICOs to remove the risks altogether.

The EU is maturing in regulation – the European Commission has released plans to introduce measures to regulate the cryptocurrency markets, one of which involves bringing traders in compliance with anti-money laundering and counter terrorist financing legislation by increasing transparency

What about the US? At this stage, regulators are open to federal regulation of cryptocurrency, but nothing has been set in stone. So far, the Commodity Futures Trading Commission has deemed cryptocurrency to be a commodity, and the IRS now requires traders to declare profit made on cryptocurrencies.

Regulation of cryptocurrencies globally

At this stage, regulators in the U.S, European Union, and Asia are not comfortable with digital currencies such as Bitcoin and Etherium. Given the price volatility and the recent pump and dump of Bitcoin, regulators globally are beginning to warn the public and investors of the volatility and the dangers of investing in cryptocurrencies.

As the regulatory environment begins to mature, regulators in different parts of the world are beginning to take different paths to regulation. We explore the state of regulation and the steps that have been taken to date by regulators:

Banning and rejection of cryptocurrencies

Algeria, Morocco, Bolivia, Ecuador, and Vietnam are some of the countries that have opted to ban the trading of cryptocurrencies to deter tax evasion. The most publicised bans, however, are the partial bans of cryptocurrency trading in China and South Korea, once the largest markets for cryptocurrency, leading to a period of decline in Bitcoin’s pricing.

Classification as a financial asset

The U.S, Canada, and EU are in the process of defining cryptocurrencies as financial assets, and therefore subjecting them to relevant existing regulations and taxes.

Regulation of exchanges

In recent times, regulators have called for the regulation of exchanges to curb the risks associated with cryptocurrency. Often, these exchanges need to be licensed to list as a trading platform, with various requirements. For example, to combat money laundering, a requirement to know their customer (KYC) and meet anti-money laundering requirements (AML) was implemented in Japan, and other governments are in the process of doing the same, such as the European Union.

Whilst only time will tell where the regulation of cryptocurrency will go globally, it is clear that major markets have started on a path to reigning cryptocurrency and its risks under control – if cryptocurrency is to be accepted, governments and regulators must gain comfort and assurance through regulation.

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