​Global crypto regulation. How governments around the world see digital assets

This year, in addition to the collapse of a number of large crypto companies, has marked the beginning of a serious approach to the regulation of digital assets. Not surprisingly, as the crypto market continues to attract new funds and players, so governments around the world are fast-tracking new laws to regulate digital assets. Some countries have found it necessary to ban cryptocurrency altogether, while elsewhere bitcoin is already legal tender. We reveal crypto regulation in different regions of the world, as well as review the details of the new Russian draft laws.

United States

Cryptocurrencies are not legal tender in the US. In this, the exchange of digital assets and cryptocurrency exchanges are legal, but the subtleties of regulation vary from state to state. This year, however, the US government did take action at the federal level — on September 16, the White House released the first-ever program to regulate cryptocurrencies in the country. The document emphasizes customer protection, prevention of cybercrime and money laundering, and prepares the groundwork for the possible launch of a central bank digital currency (CBDC).

Amid the collapse of the Terra blockchain ecosystem, the New York Department of Financial Services (DFS) issued guidance on the issuance of stablecoins pegged to the US dollar. The document includes requirements for reserves that back stablecoins as well as the ability of their redemption. DFS may ban or restrict the issuance of one or another stablecoin at any time.

Later, the US House of Representatives proposed a bill providing for a two-year ban on “endogenously collateralized stablecoins” whose value depends on a cryptocurrency issued by the same issuer. The document requires the Treasury Department to conduct a study on algorithmic stablecoins and consult with other agencies on the issue.

So far, the exchange and trading of cryptocurrencies in the States fall under the Bank Secrecy Act (BSA). In practice, this means that all crypto exchanges must register with the Financial Crimes Enforcement Agency (FinCEN) and comply with anti-money laundering (AML) laws. Every crypto exchange is considered a broker by the authorities, so such companies must keep customer records and submit reports.

The Securities and Exchange Commission (SEC) defines cryptocurrencies as securities and applies the relevant laws to them. For example, the regulator has been suing Ripple since 2020, accusing its CEO Brad Garlinghouse and Chairman Chris Larsen of trading in unregistered securities.

For how the successful outcome of the case between Ripple Labs and US regulators could affect the XRP token, read GetBlock Magazine’s special feature.

At the same time, the Commodity Futures Trading Commission (CFTC) takes a friendlier approach, describing digital assets as commodities and allowing public trading, but only if the necessary license is obtained. In September 2022, SEC Chair Gary Gensler supported a bill to give the CFTC more oversight authority over certain cryptocurrencies.

As for mining, New York lawmakers passed a law in November that partially bans cryptocurrency mining. The moratorium is imposed for two years and will suspend the issuance of permits for the construction of mining farms that use non-renewable energy sources to produce cryptocurrencies on the Proof-of-Work (PoW) consensus algorithm. The decision was made to reduce the state’s carbon footprint, but some of the local senators believe the law will have a negative impact on the region’s economy. Ethereum blockchain co-founder Vitalik Buterin also criticized it.

Previously, President Joe Biden’s administration repeatedly noted the negative impact of bitcoin mining on the environment. After discussions, miners were proposed to reduce greenhouse gas emissions with the participation of the Environmental Protection Agency (EPA), the Department of Energy, and other federal agencies.

Canada

Cryptocurrencies are not legal tender in Canada, but they can be used to buy goods and services online or in stores that accept them. The country has taken a fairly proactive approach to regulate the new technology, applying local securities laws to it. Since 2013, the Canada Revenue Agency (CRA) has taxed digital assets, and in August 2017, the Canadian Securities Administrators (CSA) issued a notice about the applicability of existing securities laws to cryptocurrencies.

AML laws also apply to digital asset organizations. In 2021, the CSA published guidance for digital asset issuers. It outlined requirements for organizations that relate to disclosure, asset collateral, and risk factor assessments. In the same year, authorities introduced a requirement for crypto exchanges to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

However, in 2022, amid the bankruptcy of the FTX exchange, the CSA issued new requirements for local platforms that require organizations to segregate client funds from their own. In addition, exchanges are prohibited from offering margin trading and leverage to traders, including institutional clients.

El Salvador

On June 8, 2021, El Salvador’s President Nayib Bukele presented the “Bitcoin Law” to Congress, which was approved by a majority vote in September. Since then, the first cryptocurrency has been declared legal tender in the country along with the US dollar. Since then, the government has repeatedly invested in the asset. Bukele said that the country will buy 1 BTC a day starting November 18, 2022. Based on the data on old stocks, El Salvador has 2416 BTC ($40,7 million at the Binance rate) by December 23.

In January, Bloomberg reported that the country’s losses from investments in BTC amounted to $12 million. A year later, 77% of Salvadorans opposed the bill. Meanwhile, according to a University of Central America (UCA) study, 75% of the country’s citizens did not use digital assets in 2022. UCA rector Andreu Oliva noted that bitcoin legalization “is the government's most unpopular measure, the most criticized and the most frowned upon.”

Even the International Monetary Fund (IMF) opposed the decision of the Salvadoran authorities. According to the organization, such an initiative carries risks for citizens and the country’s financial system. Because of this, the IMF refused to grant El Salvador a loan of $1,4 billion.

In late November, the government of El Salvador formed a National Bitcoin Office (ONBTC) to manage projects related to the cryptocurrency. ONBTC develops and analyzes projects aimed at the country’s economic development. The office will also collaborate with other countries or companies, as needed, on investments and the use of digital assets.

Mexico

In July 2022, Indira Kempis, senator of the Mexican Congress, introduced a bill that would amend the current legislation and make bitcoin legal tender in the country. Meanwhile, the Central Bank of Mexico opposed this initiative.

The authors of the bill believe that legalization of the first cryptocurrency will help expand the availability of financial instruments, because at the moment, these figures in Mexico are among the lowest in the region. 56% of the country’s population does not have access to basic financial services, such as a bank account.

In addition, the Bank of Mexico plans to issue its own digital currency, but in April the regulator moved the implementation date from 2024 to 2025.

Honduras

On August 1, 2022, the Central Bank of Honduras issued a statement saying that “cryptocurrency assets do not have support, so they are not regulated nor is their use guaranteed, therefore, they do not enjoy the protection granted by national laws.” To this day, digital assets in Honduras remain in a gray area, and their existence has not yet been recognized in any bill in the country.

However, in April, Próspera, a special economic zone located on the island of Roatan in the Western Caribbean and Northern Honduras, announced the adoption of bitcoin as a legal tender. In this zone, local governments and international companies can issue bitcoin bonds under AML and KYC rules. In addition, cryptocurrency transactions are not subject to capital gains tax in Próspera.

Brazil

In early 2022, the Senate’s Economic Affairs Committee of Brazil unanimously approved the bill on cryptocurrencies. Later, the Senate approved the document, which became the basis for the creation of a regulatory framework for crypto regulation. During the sessions, it was decided that either a specially established regulator would be responsible for this area, or the authority would be shared between the Securities and Exchange Commission (CVM) and the Central Bank of Brazil (BC).

A particular focus of the document was the fight against digital crime and money laundering. In July, the Brazilian Federal District Attorney’s Office opened a cryptocurrency crime unit to help other departments investigate cases involving digital assets.

Brazilian authorities have also begun drafting a bill that would allow the tokenization of mined gold. The document aims to establish new rules for trading in the precious metal, which would then be registered on the blockchain. At the end of November, the Brazilian Congress passed a bill regulating the use of cryptocurrencies for purchases and payments for goods. The document does not imply the legalization of digital assets as a means of payment but facilitates their use for transactions. This law, which still requires presidential approval, would also allow banks to provide services related to cryptocurrency trading and custody.

Argentina

According to Chainalysis, Argentina ranks 10th in the list of countries for the adoption of cryptocurrencies. But despite the booming crypto sector, this year the government began imposing stricter restrictions on digital assets. On May 5, the Central Bank of the Republic of Argentina (BCRA) banned financial institutions from offering cryptocurrency-related transactions to customers. According to the agency, it is necessary to reduce financial risks, as state bodies do not regulate such assets. As early as May 16, the Senate passes a law to confiscate bitcoins and other crypto assets to pay a debt of about $44 billion to the IMF. Now the organization and the Argentine government are developing a new mechanism for taxing digital assets.

United Arab Emirates

In 2018, the UAE adopts Emirates Blockchain 2021, a new development strategy that aims to integrate half of the government transactions into a blockchain platform by 2021. In February 2022, the Emirate authorities pass the Virtual Assets Law, which establishes a new body to oversee cryptocurrencies, the Virtual Assets Regulatory Authority (VARA). VARA is in charge of licensing digital assets and related entities.

Also in March, the Abu Dhabi Global Market (ADGM), the UAE’s international financial hub, published guidance on NFT regulation that equates non-fungible tokens with cryptocurrencies.

More cryptocurrencies have recently started flowing into the Emirates, with many investors buying real estate for digital assets. Amid this trend, the UAE authorities have tightened controls on such trades. Under the new rules, realtors, brokers, and other firms must report crypto transactions whose nominal amount exceeds 55 000 United Arab Emirates dirhams (AED) under AML rules.

In addition, the UAE government is actively promoting the idea of metaverses. Some of the local government agencies are already headquartered in the digital world, such as the Ministry of Economy.

Saudi Arabia

In 2017, the Saudi Arabian Monetary Agency (SAMA) issued a warning about the dangers of cryptocurrencies because they are not controlled or supported by any legitimate financial authority. Citizens are free to trade assets but have no legal protection. Meanwhile, banks and other financial institutions can work with cryptocurrency only after SAMA approval. Since then, cryptocurrencies in Saudi Arabia have been in a gray area.

Iran

In April 2022, the Islamic Republic of Iran refused to recognize cryptocurrencies as legal tender. Deputy Minister of Communications Reza Bagheri Asl noted that the use of any foreign or private digital currency is against the country’s currency and banking laws.

In addition, Iran has penalties for mining using subsidized electricity for households, commercial and industrial consumers. According to tightened rules, there are fines, license revocation, and even criminal penalties for violating this law.

Also in September 2022, the country’s central bank announced the start of testing the national cryptocurrency. The digital rial is issued in accordance with the legal provisions governing the issuance of banknotes and coins. Iran also allowed the purchase of imported goods for digital assets. On August 9, the country registered its first import order using cryptocurrency as a payment method. The total amount of the transaction was about $10 million.

China

The People’s Bank of China (PBOC) banned financial institutions from conducting bitcoin transactions in 2013 and went even further in 2017 by banning domestic exchanges as well. Not surprisingly, China does not consider cryptocurrencies to be legal tender, and the country has a global reputation for being tough on the regulation of the sector. In September 2021, Chinese authorities imposed a complete ban on cryptocurrency transactions. Cryptocurrency mining was also subject to restrictions.

In April, local financial associations proposed a series of restrictions on non-fungible tokens, citing that they could facilitate illegal financial activities. In June, Chinese messenger WeChat began blocking accounts associated with NFTs and cryptocurrencies.

Instead of cryptocurrencies, the Chinese government is promoting the digital yuan (eCNY) project. The state cryptocurrency was designed to replace cash and is accepted as payment for goods, bills, transportation, and taxes. In early April 2022, the second phase of e-CNY testing was launched. The government is gradually introducing the digital yuan, expanding the scope of its use region by region.

However, amid the Chinese authorities’ total aversion to cryptocurrencies, Hong Kong announced plans to change its approach to crypto regulation. According to Elizabeth Wong, head of the fintech unit of the Securities and Futures Commission (SFC), the Hong Kong government is considering introducing its own bill to regulate cryptocurrencies without China. One of the SFC’s initiatives is to allow retail investors to “directly invest into virtual assets.” The Hong Kong government plans to go even further by adopting new technologies, such as NFTs and metaverses, and turning the city into an “international virtual asset center.”

Singapore

In 2021, the Singapore authorities amended the Payment Services Act to regulate digital assets. From then on, all crypto companies and organizations must be licensed by the Monetary Authority of Singapore (MAS). In this, it is prohibited to advertise crypto services in the country.

In October, the Singapore High Court ruled that NFTs are property. The ruling follows a dispute over the ownership of token #2162 from the Bored Ape Yacht Club (BAYC) collection, which was used as collateral for a loan. As part of the process, the court barred the sale of the asset in the interest of protecting the plaintiff back in May 2022.

At the same time, MAS proposed to prohibit retail investors from taking out loans to buy cryptocurrencies. Also, under the bill, all stablecoins would have to be pegged to the local dollar or a Group of 10 currency and fully backed by reserve assets of the same denomination.

Japan

Japan now has the world’s most progressive cryptocurrency regulatory climate and recognizes bitcoin and other digital currencies as legal property under the Payment Services Act (PSA). In December 2017, Japan’s National Tax Agency (NTA) ruled that profits from cryptocurrencies should be classified as “other income” and that investors should be taxed.

In 2020, the authorities established Japan’s Virtual Crypto Assets Exchange Association (JVCEA), which is the oversight body for all crypto exchanges and companies. It is JVCEA that decides on the listing of a particular cryptocurrency. In October 2022, it relaxed asset listing rules, which shortened a lengthy screening process.

Japan also began to comply with the rules of the International Financial Action Task Force (FATF). Japanese cryptocurrency exchanges banned anonymous transactions and began providing data about their customers at the request of regulators.

In June 2022, the Japanese Parliament defined the status of stablecoins, equating them with digital money. According to the document, stablecoins must be backed by any legal tender and guarantee owners the right to redeem them at face value.

European Union

In October 2022, the Council of Ministers of the European Union member states finally approved the Markets in Crypto Assets (MiCA) bill. The document must now be backed by the European Parliament, and the new legislation is expected to come into force by 2024.

MiCA will require custodians of digital assets to verify the identities of their customers as part of an anti-money laundering campaign. The document will also limit trading in unsecured Euro stablecoins to 200 million EUR per day. In addition, the bill will equate NFTs with securities. Trading platforms must obtain a license to operate from the regulator, which will be the European Securities and Markets Authority (ESMA).

Binance CEO Changpeng Zhao said in September that the EU’s MiCA would become a “global regulatory standard copied around the world.”

The EU authorities also proposed to ban cryptocurrency mining in case of power problems. According to the document, EU member states should be prepared to stop mining immediately.

Kazakhstan

Kazakhstan has long been one of the main crypto hubs in the CIS. In October of this year, Kazakhstan’s lower house of parliament approved the bill on the regulation of digital assets and mining. The document clarifies the rules of the issuance and circulation of both backed and unbacked assets. It also introduces mandatory registration, licensing and taxation for miners.

Prior to that, the country presented a bill “On digital assets in the Republic of Kazakhstan,” which legalizes the activities of cryptocurrency mining, as well as assigns electricity quotas for miners.

In June, Kazakhstan approved the rules of interaction between crypto exchanges and second-tier banks. Platforms and companies registered in the Astana International Financial Center (AIFC) were allowed to have bank accounts. As early as September 29, a private Kazakh bank conducted the first transaction to buy bitcoins for fiat money, with local crypto exchange Intebix acting as an intermediary.

In 2021, Kazakhstan’s central bank began exploring the creation of a national cryptocurrency. In October, information appeared about the integration of digital tenge with the BNB Chain from Binance. Recently, the Central Bank of Kazakhstan reported on the successful completion of testing of the CBDC platform. Both real consumers and merchants participated in the program. At the same time, according to surveys, more than 60% of the population of Kazakhstan is ready to use the digital tenge.

Russia

The issue of regulating cryptocurrencies has been in the Russian Federation for quite some time, but the main regulators — the Bank of Russia and the Ministry of Finance — could not find a compromise on this issue. For example, the Central Bank was categorically against the legalization of mining. However, both departments agreed that it is impossible to legalize cryptocurrency as a means of payment.

On September 15, 2022, Russian Prime Minister Mikhail Mishustin instructed all interested departments to agree on a common position on the regulation of digital financial assets (DFAs), mining, and the use of cryptocurrencies in international payments by December 19. Already after this statement, the Central Bank and the Ministry of Finance still agreed to legalize mining, but only in regions with a surplus of electricity. The Bank of Russia conceptually supported the draft law, which was submitted to the State Duma on November 17.

Digital currency, obtained by mining, will be subject to sale without the use of Russian infrastructure. In addition, it will not be subject to the requirements of the law on currency regulation and control. Also, the draft law confirms that digital assets will be banned as a means of payment within the country.

The document provides for the sale of mined cryptocurrency both on foreign platforms and in Russia, but only through a special platform to be created under the law on experimental digital regimes. However, in December, the Central Bank proposed to impose a number of restrictions, allowing the sale of cryptocurrency mined by miners only on foreign markets and only to non-residents of the Russian Federation.

In July, Russian President Vladimir Putin signed a law on the regulation of DFAs. The document imposes a ban on payments for goods, services, and works with DFAs, excluding certain cases stipulated by federal laws. Also, the law introduced the concept of an electronic platform operator. Such operators are equated to the subjects of the national payment system and have the right to settle transactions on electronic platforms. The Bank of Russia was appointed as the supervisory authority over the operators, which will create a corresponding register and will identify violations.

In October, the Ministry of Finance and the Central Bank allowed international settlements in digital assets for all industries. Ivan Chebeskov, Director of the Financial Policy Department of the Ministry of Finance, said that all possible alternatives to the US dollar and the SWIFT interbank messaging system, including cryptocurrencies, stablecoins, and DFAs, should be used for cross-border settlements.

In October, the first DFA for a basket of several precious metals was issued on Atomyze, the platform for the digitalization of assets. It included gold and silver, as well as platinum, palladium, rhodium, iridium, and ruthenium. According to Ekaterina Frolovicheva, the head of Atomyze, the advantage of DFAs over cryptocurrencies is the availability of real financial security. In early December, Atomyze allowed the first unqualified investors to buy DFAs for palladium on its platform. Sberbank also announced the issuance of DFAs for gold on its own blockchain platform, and later SPB Exchange presented its plan to enter the same market.

The Ministry of Economic Development took up the task of regulating NFTs in Russia. The regulator plans to amend the law“On Digital Financial Assets” and the Civil Code, outlining the legal status and rules for token issuance. However, later the Center for Strategic Research (CSR) of the Russian Federation proposed to implement a separate legal framework for NFTs, stating that the inaccurate definition in the current draft law does not correctly reflect the functionality of the technology.

Russia’s Ministry of Interior is also trying to regulate new technologies. Thus, the Ministry of Interior proposed to impose the regulation of virtual reality. Representatives of the department believe that this will allow combating the negative impact on society. Also in December, the Ministry connected a new tool for tracking cryptocurrency transactions — “Personal account of the law enforcement body.” According to the Ministry of Internal Affairs, this technology allows for identifying unscrupulous owners of crypto wallets and analyzing the market across the country.