Introduction
The story of the cryptocurrency market has been a topsy-turvy one. While you have some people who were fortunate enough to buy into cryptos quite early and made millions, you also have those who have lost colossal amounts of money. Part of what defines the cryptocurrency market is its unpredictability, and the fact that the market is not a perfect market. Without a coordinated regulatory structure all over the world, pricing of cryptos tend to differ, trading conditions differ and the risk profile of cryptocurrency trading is also different.
Global State of Cryptocurrency Regulations
Of very critical importance is the issue of regulation. What really is the state of regulation as far as cryptocurrencies are concerned? This article paints a map of the regulatory situation of cryptocurrencies in some of the world’s most important trading jurisdictions.
The discussion will be done under the following regulatory stratification:
- Fully Regulated
- Moderately Regulated
- Unregulated but Permitted
- Prohibited
We now delve into the various classifications to spell out what they mean, and how it affects cryptocurrency traders and those who want to get into the business of cryptocurrency trading.
1.Fully Regulated
A fully regulated jurisdiction is one in which the central authorities have allowed cryptocurrency trading to be done, but under a clearly defined set of regulations, which are enforced by a central regulatory agency. In this manner, cryptocurrencies can be traded just as any other financial asset (e.g. stocks, commodities, indices, forex, etc). However, such trading can only be done with regulated brokerages and exchanges, who have been assigned licenses and are supervised by a regulatory agency.
The following countries represent jurisdictions where cryptocurrency trading is regulated.
- Gibraltar
- Malta
- Japan
- Bahrain (has moved from implicit prohibition to permission under a regulated environment)
- Estonia
Estonia plans to develop a national cryptocurrency to be known as Estcoin.
2. Moderately Regulated
A moderately regulated jurisdiction is one in which there is more of a regional regulation of cryptocurrency trading. In other words, states or regions can issue licenses, but there is no centralized oversight from Federal authorities. You may find that you can trade cryptocurrencies on an exchange that is regulated in one location within a country, and a few miles away across a state border, you could find yourself in hot waters doing the same thing.
Under this category are countries whose existing securities laws, anti-money laundering (AML) laws and tax laws provide a legal bottleneck for cryptocurrency traders, as well as marketing of crypto-based products such as ICOs. However, these regulations in themselves do not prevent or limit cryptocurrency trading per se.
The following countries represent jurisdictions where cryptocurrency trading is moderately regulated.
- United States
- Switzerland (financial market laws, AML and securities laws, capital gains tax on crypto trading proceeds).
- United Kingdom
- Bermuda
- Hong Kong
- Singapore
This category of regulation may be the most confusing of all, because the landscape is constantly evolving, and also because of a lack of a single regulatory framework that covers the entire country which can be referenced by traders and crypto trading providers.
3. Permissively Unregulated
A jurisdiction that is classified as being permissively unregulated, is one in which the central authorities do not have any regulations prohibiting or allowing cryptocurrency trading. You could say that these are countries where financial regulators issue warnings against crypto trading, but do not have any regulations banning crypto trading, no tax laws on proceeds of crypto trading, no restrictions on the marketing of crypto trading products to the public, and no framework whatsoever that defines the limits of crypto trading within their jurisdictions. Many countries of the world belong to this category. Examples are as follows:
- The whole of Africa, except Morocco, Namibia, Egypt, Algeria.
- The whole of South America (except Bolivia, Ecuador and Colombia where crypto trading is prohibited).
- Canada
- Mexico
- Slovenia
- Georgia
- Germany (may soon change as leading financial experts in the country as well as Deutsche Bank are calling for regulation of cryptocurrencies).
- Central America (Nicaragua, Costa Rica)
- Caribbean
- Cyprus
- Russia
- Israel
- Lebanon
- Turkey
- Malaysia
- Philippines
Some of the countries on this list are considering changes to their standoffish positions on cryptocurrencies and may soon make changes that will affect their status on this list.
4. Prohibition (Implicit and Outright)
There are also jurisdictions where trading of cryptocurrencies, marketing of crypto-based products (such as ICOs), purchase and use of mining equipment and operation of crypto exchange/trading venues are either implicitly prohibited or banned outright. Country examples are:
- Morocco
- Namibia
- Bolivia
- Ecuador
- Egypt
- Algeria
- Cambodia
- Indonesia
- Bangladesh
- China
- Colombia
- Dominican Republic
- Indonesia
- Iran
- Iraq
- Kuwait
- Lesotho
- Lithuania
- Oman
- Qatar
- Macau
- Oman
- Nepal
- Pakistan
- Saudi Arabia
- Taiwan
- Thailand
Courtesy: Law Library of Congress Report on Legal Status of Cryptocurrencies
You may have probably noticed that South Korea, which features many cryptocurrency exchanges, has been left out of these lists. This is because of the contradictory statements on the regulatory status of cryptocurrencies emanating from its Finance and Justice Ministries. Perhaps the position of the country’s government will be made clearer in 2019.
What Next?
2019 looks set to be a defining year for cryptocurrency regulation. As such, a lot of fluidity in the composition of these lists is to be expected. Some countries may clamp down more on crypto trading, and some others may relax their positions on it. Countries like China will continue to adopt nationalistic positions on the issue. The country is aggressively pursuing blockchain adoption and is pushing towards the development of a national cryptocurrency. Bahrain has gone the way of regulation after its initial anti-crypto stance of yesteryears.
Such a fluid situation means that for several months or even years to come, there will be a need to keep revising these categories, as countries move from one category to another. There are also countries where the status cannot be defined because of contradictory statements from central banks, Ministries of Finance and Justice Ministries. It is hoped that these countries would come out soon to clarify their stance on cryptocurrencies, for the benefit of their citizens.