Even though cryptocurrencies have been available for over a decade, it was only five to six years ago that regulators began to feel the pressure to catch up. Previously, monetary authorities viewed digital assets as part of a parallel universe that would never conflict with their own. However, as cryptocurrencies began to infiltrate the capital markets, regulators throughout the world hurried to respond, even though they could not make any head or tail of it at the moment.
The world of digital currency was introduced to break free from government control. As a result, after the introduction of cryptocurrencies, the industry raised concerns about illegal tax evasion, criminality, volatility, and the government’s ability to steer the economy or influence monetary policies. However, safety regulators needed to step in when individuals began using digital currencies to raise assets.
Nonetheless, regulators were unsure about making decisions on the practicality of activities or the number of disclosures because they were curious about blockchain innovation and the basic plan of action supporting its utilization.
What are Digital Currencies?
Digital currencies and cryptocurrencies expect to reflect a few, if not all, of the functions of currencies – a method for payment, a store of value, and a unit of exchange. Bitcoins and other altcoins operating on the market are best understood as currencies that can be categorized under a volatile, speculative asset class that some users are willing to accept as payments.
Governments are concerned about its use in illegal activities such as money laundering, terrorist financing, and tax fraud, partly because their fundamentals outline decentralized ‘blockchain’ technology that protects a holder’s identity.
Stablecoins, particularly global stablecoins, are also gaining traction among investors worldwide. For instance, leading corporate giants like Facebook proposed a global currency previously known as Libra.
However, it is now rebranded as Diem, which has sparked the most attention, both from firms considering issuing a digital token and from governments pressing on the necessity to regulate them. If you wish to learn more about cryptocurrencies, visit erecoin.io.
How Are Cryptocurrencies Regulated?
The restrictions put in place to try to regulate cryptocurrencies are gaining momentum worldwide. The landscape is constantly changing, and staying updated on the rules in various jurisdictions is difficult. As a result, here is a quick rundown of what regulations are in place in some of the most significant countries worldwide.
Even though the United States has a large number of cryptocurrency investors and blockchain enterprises, the country has failed to establish a clear regulatory framework for the asset class. The Securities and Exchange Commission (SEC) considers cryptocurrency to be a security, but the Commodity Futures Trading Commission (CFTC) considers Bitcoin (BTCUSD) to be a commodity, and the Treasury considers it to be a currency. In the United States, cryptocurrency exchanges are governed by the Federal Reserve.
Regulators have commonly taken a proactive position toward crypto in Canada. The authorities started endorsing Bitcoin trade exchanged assets (ETF) from February 2024. Moreover, the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization of Canada (IIROC) have explained that crypto exchanges and related platforms should enroll with commonplace regulators.
Besides, Canada classifies crypto venture companies as money service businesses (MSBs) and necessitates that they register with the Financial Transactions and Reports Analysis Center of Canada (FINTRAC). From a tax assessment stance, Canada treats digital currency like commodities.
The United Kingdom considers digital money as property, but it is yet to get classified as legal tender. Moreover, all cryptocurrency trades should enlist with the U.K. Financial Conduct Authority (FCA) and is prohibited from offering crypto subsidiaries transaction leeway. Even though investors pay an additional capital charge on crypto transaction gains, you will not have to pay any tax if you fall under the allowance category as prescribed by the authorities.
Problems with Regulation
There will be benefits and drawbacks to the establishment of any regulatory organization. The bifurcation of the national regulatory structure, as well as many regulators at the federal level, will pose severe issues in the United States, for example. As a result, regulators must strike a balance between safeguarding investors and doing their duties.
In the market, a complete classification is difficult to come by. When analyzing these challenges, the comparison of crypto assets and fiat currency is often discussed. According to a study conducted by the European Parliament on the subject, Crypto assets are not yet acknowledged as a standard payment mechanism.
Many analysts believe that cryptocurrencies are a whole new asset class. For tokens that act as securities, this categorization may be correct. In general, crypto assets are described as investments that provide various benefits in addition to being a store of value. The truth is that blockchain technology, which underpins cryptocurrencies, is reshaping the banking and finance industries in numerous ways. In a nutshell, Blockchain is a distributed ledger that ensures replication of an identical copy of encrypted ledger data.
Distributed ledgers are utilized by businesses in various regions of the world to help with public functions like identity management and healthcare. Estonia is one of the most excellent examples of how countries can utilize Blockchain technology effectively. Estonia’s digital infrastructure is based on an open-source system, thereby ensuring transparency about its public healthcare policies and allocated budget.
The best strategy to address and control Bitcoin and other digital currencies in the future will be determined by how the cryptocurrency evolves. A thorough examination of Bitcoin investors and the crypto economy in which they operate is required to forecast the trend and summarize the applicable legislation.
With this change, we must be vigilant for regulatory gaps, which can increase the risk of fraud. On the contrary, the regulation of cryptocurrencies will benefit investors and financial services in the long run. Stringent laws will help to accelerate the development of new technologies while also lowering the risk of cryptocurrencies being used in fraudulent activities.