Bitcoin, and other cryptocurrencies, are by design meant to be transnational, beyond the control of any one sovereign. In addition, the technology and its applications are changing rapidly. What this has led to is a situation where each regulator has a unique, often well-intentioned but mostly ill-advised approach to cryptocurrencies, driven solely by their needs (or concerns). This patchwork of global crypto regulatory measures has led to a confusing state of affairs, and both the companies as well as the regulators are worse off in the current scenario. Innovation is being stifled and the key concerns of sovereigns around security, auditability and taxation are also not being addressed properly.
This lack of a coherent regulatory framework for cryptocurrencies is one of the key reasons why cryptocurrencies are still not on par with other asset classes from an investability standpoint. The global regulatory landscape for cryptocurrencies looks very incoherent, with many countries taking their time to arrive at a framework for cryptocurrencies and some others like China and India signalling hostility, either directly or indirectly.
While we await a comprehensive regulatory framework for ICOs from the SEC and other major regulators there are definitely green shoots in terms of progressive regulation. We have mentioned Singapore’s MAS and their progressive approach earlier, and South Korea and Japan too seem to be providing more clarity over the tax treatment of cryptocurrencies. South Korea is reportedly mulling over formalising a framework for cryptocurrencies and ICOs. At the moment however, ICOs are still banned in South Korea. According to South Korea’s Finance Minister nominee, Hong Nam-ki, experts and financial regulatory personnel are conducting surveys to establish the framework for regulating cryptocurrencies. The taxation policies for cryptocurrencies are expected to be broadly in line with the taxation policies and progress by other global participants. Having a formal framework for cryptocurrency regulation and taxation is a welcome sign for many South Korean crypto ecosystem stakeholders, especially cryptocurrency exchanges, who are deferring crypto-focused projects and business expansion decisions due to the uncertainty over crypto regulations in South Korea.
Meanwhile, Japan is also moving fast to hammer out a legal and regulatory framework for ICOs, with the key intention of capping the investment an individual can make in an ICO. Meanwhile, earlier in the year the FSA granted virtual exchanges ‘self-regulatory’ status as the regulator was of the opinion that experts are better positioned than bureaucrats to make right decisions in the fast-paced crypto world.
It is also in this context that the recent announcement from the G20 summit sounds promising. The organisation has declared that the member nations will join hands and approach cryptocurrencies ‘in line with the standards laid down by the Financial Actions Task Force (FATF). Hopefully this should lead to a more constructive, coordinated approach to crypto regulation which can only help. As investors might say, one can price risk, but not uncertainty.