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In the last decade, the cryptocurrency landscape has evolved dramatically.
Historically, the traditional recognition of an emerging technology is a precursor of protective legislation. We have seen governments around the world run to provide investors with regulatory oversight.
Here, we will take a deep dive into a series of legislative trends in cryptocurrency markets around the world.
According to the Financial Services Authority (FSA) of Japan, there are over 3.5 million active operators in Japan. Coinbase has registered 50,000 new global users a day in 2017. In addition, funding through early chip offerings (ICOs) reached an impressive $ 6.3 billion in the first quarter of 2018.
With statistics like these, it is clear that individuals around the world are excited about the potential of this new asset class as an investment vehicle. However, in response to rising levels of general interest, governments have implemented regulatory measures to protect investors.
Following the Tokyo Mountain. Gox hack in 2014, the FSA quickly assembled a study group to develop a regulatory framework. This led to the formation of a compulsory operational license that focuses on customer identification and anti-money laundering, asset security, personnel management and more.
The FSA has been constantly working with exchanges to iteratively improve licensing requirements, granting operational licenses to numerous national exchanges including Quoine, SBI VC and bitFlyer.
The Korean government has adopted a similar model of preventive regulation. He banned anonymous trading accounts, requesting exchanges to register with the Financial Supervisory Service (FSS) and regulating similar exchanges to commercial banks. The rigorous regulatory framework has led to the formation of few national exchanges with Bithumb, UpBit and Coinone among the most popular.
On the opposite side of the spectrum, authorities in key financial hubs like Singapore, Hong Kong and Switzerland have adopted a relatively passive and reactive approach. They mention the need to find a balance between investor protection and creating an environment that is suitable for innovation.
In Singapore and Hong Kong, exchanges must meet pre-established standards for identifying customers and combating terrorist financing, but do not require special operating licenses to operate. With ICOs, Switzerland and Singapore have developed relatively lenient guidelines.
Singapore hosts high-level projects such as TenX, QTUM and Wanchain. On the exchange front, Quoine and Huobi have international offices in Singapore. BitMin, the world's leading bitcoin exchange by volume, has an office in Hong Kong and has expressed its commitment to work with regulatory authorities.
In the smaller and developing countries, we can see a clear effort to implement proactive regulatory approaches. A noteworthy example is Malta, the "blockchain island". In July 2018, the Maltese parliament issued three legislative proposals defining the regulatory frameworks for exchanges, ICOs and certification of distributed accounting technologies (DLT). In this regard, Malta has become the first country in the world to create an official regulatory framework around this emerging technology, attracting large companies to create stores.
The Maltese government's willingness to develop a transparent regulatory environment suggests that the country is leveraging the blockchain and becoming the next economic gold mine. This type of accelerated regulatory approach is more feasible for smaller countries.
In Southeast Asia, Thailand has taken a progressive approach to regulation. In March 2018, the Thai government drafted a royal decree describing in detail a proposed regulatory framework for cryptocurrency and ICO exchanges. Only three months later, the decree received final approval and was put into law. The framework provides regulatory oversight to the Thai Securities & Exchange Commission and provides detailed guidelines for exchange licenses and cryptocurrencies accepted for ICO contributions.
The United States is home to many technology giants, but there is a lack of legislative clarity on cryptocurrency. The prudent regulatory approach could be a by-product of the free supervision of the Securities & Exchange Commission (SEC) during the dotcom bubble over the years 90 or it could also be a matter of understanding which governmental institution has jurisdictional oversight.
For example, the US Treasury financial enforcement network (FinCEN) regulates cryptocurrency trade. It requires you to register as a monetary service activity (MSB), implement appropriate anti-money laundering systems and report suspicious transactions. At the same time, the SEC is trying to regulate exchanges that offer tokenised securities, even if there are no formal guidelines specifying what constitutes an offer of securities related to cryptocurrencies. The Commodity Futures Trading Commission (CFTC) considers cryptocurrencies as a commodity and adopts a more restrictive approach to the exchange of regulations.
There have been some major regulatory developments in the United States, such as BitLicense and the SEC ruling against Bitcoin and Ethereum as security. However, their approach to regulation has consisted primarily in applying existing laws that are not adapted to cryptocurrency and blockchain. As a result, only the most compliant companies are able to operate in the country. Coinbase, Ripple and Gemini are examples of blockchain companies based in the United States that have been hugely successful.
We can observe a clear trend that suggests that many exchanges of cryptocurrency and ICOs are actively seeking regulatory clarity and government support in places like Singapore, Hong Kong, Malta and Thailand. On the other hand, institutions that value globally recognized compliance and legitimacy are actively seeking expansion in the United States, Korea, and Japan.
