Cryptocurrency Regulation in 2018: Where the World Stands Right Now

If 2017 was the year of the ICO, it seems as if 2018 is destined to become the year of regulatory reckoning. Things have already begun to heat up as countries around the world grapple with cryptocurrencies and try to determine how they are going to treat them. Some are welcoming, others are cautious. And some countries are downright antagonistic. Here is a brief overview of how 15 countries/unions from various regions are treating cryptocurrency regulations.

United States
The United States, at the time of this writing, has no coherent direction on its cryptocurrency regulation other than that there will be some soon. The Securities and Exchange Commission (SEC) has warned investors of cryptocurrency investing risks, halted several ICOs and hinted at the need for greater cryptocurrency regulation.

The Commodity Futures Trading Commission (CFTC) became the first U.S. regulator to allow for cryptocurrency derivatives to trade publicly, then organized meetings to talk about possibly changing the rules for cryptocurrency derivatives clearing (one of the meetings was postponed due to the federal government shutdown).

Secretary of the Treasury Steve Mnuchin has indicated a preference for minted fiat currency over cryptocurrency. Speaking on January 12, 2018, at the Economic Club in Washington, D.C., Secretary Mnuchin warned those in attendance that he and other regulators were looking into the possibility that cryptocurrency could be used in money-laundering activities. The secretary then announced to the group that the Financial Stability Oversight Council (FSOC) had formed a working group to explore the cryptocurrency marketplace and that he hoped to work with the G20 to prevent bitcoin from becoming a digital equivalent of a “Swiss bank account.”

Defending his stance to World Economic Forum attendees on January 25, 2018, Mnuchin explained that his number one focus on cryptocurrency was “to make sure that they're not used for illicit activities.”

On January 26, 2018, U.S. Treasury Deputy Director Sigal Mandelker echoed the secretary’s sentiments after a visit to China, South Korea and Japan. At a press conference in Tokyo, she applauded the three Asian countries for keeping tabs on cryptocurrency trading, stating, “We feel very strongly that we need to have this kind of regulation all over the world.”

It should be noted that non-U.S. investors may have concerns over clearing licensing hurdles put up individually by the states. If the U.S. treats cryptocurrencies as currency, it seems more likely that the actions by the federal government and federal regulatory agencies would preempt states’ licensing. However, if treated as “securities” (the SEC has not completely cleared the issue up), cryptocurrencies, especially ICOs, would have to clear “blue sky laws” on a state-by-state basis.
Canada
The Financial Consumer Agency in Canada does not consider cryptocurrencies to be “legal tender,” excluding all but Canadian bank notes and coins from that definition. The True North, however, is not all harsh on its cryptocurrency regulatory stances. In fact, it appears to be the most transparent country in this list when it comes to understanding laws surrounding the digital currency industry (aside from Switzerland, which wants to be “THE crypto-nation”).

After weeks of hearings, which included testimony from experts like Andreas Antonopoulos, the Canadian Parliament approved Bill C-31 on June 19, 2014, the world’s first national law on digital currencies. The Canadian government has been communicative in its regulatory stances on cryptocurrency ever since: the Canadian Securities Administrators (CSA) sent out a regulatory notice on August 24, 2017, confirming “the potential applicability of Canadian securities laws to cryptocurrencies and related trading and marketplace operations and to provide market participants with guidance on analyzing these requirements.” If you want a clear and concise interpretation of this notice, check out this article.

More recently, the head of the Central Bank of Canada, Stephen Poloz, was quoted as saying on January 25, 2018, that “I object to the term cryptocurrencies because they are crypto but they aren’t currencies … they aren’t assets for the most part … I suppose they are securities technically … There is no intrinsic value for something like bitcoin so it's not really an asset one can analyze. It's just essentially speculative or gambling.” It should be noted that as part of the North American Securities Administrators Association (NASAA), Canada joined an association-wide “cautionary directive” on the risks of cryptocurrencies, with all representatives from every province in the country believing there is a “high risk of fraud.”

Venezuela
Venezuela is not a major world economy or a large portion of the cryptocurrency investing community. The country’s regulatory stance on cryptocurrencies, however, is noteworthy because the government, under the restrictive regime of Nicolás Maduro, is seeking to skirt economic sanctions imposed on Venezuela by announcing its own oil-backed “petro” cryptocurrency.

Under Maduro, the country has been divided for years by protests and clashes between opposition parties and the government. Venezuela started off 2017 seemingly seeking to crack down on cryptocurrencies as the Venezuelan Bolivar remained relatively unusable. And even as recently as December 13, 2017, the Maduro government sought to regulate cryptocurrency mining as the newly minted superintendent of cryptocurrencies, Carlos Vargas, announced the compilation of a detailed registry of cryptocurrency miners in the country.

In a country where the fiat currency is worth little and sanctions from the U.S. continue to mount, a state-sanctioned cryptocurrency may cause Venezuela — a typically restrictive regime — to become one of the most progressive countries on cryptocurrency regulations (even if only to further sales of petro).

Japan
Japan isn’t particularly liberal toward digital currency regulation; it’s merely winning the race to attract the best from Asia’s cryptocurrency industry, as China and South Korea have been creating hostile/uncertain environments. Whether or not Japan will allow for a cryptocurrency-themed J-pop band, the Japanese government has certainly been more welcoming of cryptocurrencies than its Asian neighbors.

Recent events may have tempered Japanese enthusiasm for cryptocurrencies, however. The hack of a Japanese exchange on January 26, 2018, resulting in the loss of $530 million worth of NEM coins, has prompted backlash from the community and closer oversight from the Financial Services Agency (FSA).

China
China has been taking ever-increasing actions to clamp down on all things cryptocurrency. Starting off by banning ICOs, China ordered a bank account freeze associated with exchanges, kicked out bitcoin miners, and instituted a nationwide ban on internet and mobile access to all things related to cryptocurrency trading. The People’s Republic of China appears to be the most stringent cryptocurrency regulator of the major economies regarding cryptocurrencies. This is an odd about-face given that, in 2017, Chinese bitcoin miners made up over 50 percent of the worldwide mining population and that cryptocurrency adoption in China increased at a rate higher than any other country.

Though strict, the regulatory actions of the People’s Republic of China, under the stewardship of Xi Jinping, makes contextual sense as the country has recently been focused on stemming capital outflows and stomping out corruption.

South Korea
Where to begin with South Korean regulation? The country boasted a significant cryptocurrency presence in the past and was initially thought of as the country of refuge from the crackdowns occurring in China late last year. However, discord surfaced in January 2018 amongst top Korean officials on future regulatory actions for the digital currency industry, with declarations, clarifications, misinformation and ultimately some limited implementation. The uncertainty and potential negative regulatory impacts have now been cited as the cause for marketwide sell-offs on Red Tuesday as well as on January 30, 2018, when Korean officials began enforcing a January 23, 2018, rule disallowing anonymous accounts from trading cryptocurrencies.

To add external regulatory drama to the political dissonance demonstrated by a government less than a year out from ousting their former president, regulatory prospects for South Koreans have also been hindered by New York State’s Department of Financial Services (DFS), as they reportedly requested customer information on accounts associated with cryptocurrency trading among six commercial Korean banks with branches in New York on January 26, 2018.

Singapore
Until recently, the finance and banking center of Asia has been relatively lax compared to many of its Asian counterparts on cryptocurrency regulation. The Monetary Authority of Singapore (MAS), like many financial regulators, warned of risks of speculating in the cryptocurrency markets during the December 2017 peak in bitcoin prices. And Singapore’s International Commercial Court heard a trial that same month over a bitcoin trading dispute, seeming to legitimize the economic stakes in dispute.

On January 9, 2018, Singapore’s Deputy Prime Minister Tharman Shanmugaratnam said that “the country’s laws do not make any distinction between transactions conducted using fiat currency, cryptocurrency or other novel ways of transmitting value.”

MAS fintech chief Sopnendu Mohanty on January 24, 2018 did state that he does not foresee a Lehman Brothers-like financial meltdown with Bitcoin at this point in time, adding that there is “a great indication that regulators are getting serious about this whole cryptocurrency market.”

Mohanty also stated regulators would need to apply consumer protections for digital currencies like bitcoin for it to continue to grow. While there has been no statement yet from the Monetary Authority of Singapore, the $530 million hack that attacked Japanese exchange Coincheck on January 26, 2018, targeted Singaporean-based NEM coins.

India
India, once viewed as a burgeoning, friendly environment for cryptocurrencies, has been clamping down on cryptocurrencies in 2018. India’s tough stance stems from similar concerns that other, more stringent regulatory regimes have cited: money laundering, illegal activity proliferation, sponsorship of terrorism, tax evasion, etc. While the cash-reliant country is facing stern regulations, participants of the local cryptocurrency industry do not believe India can “ban” cryptocurrencies through regulations in the same way China has.

Australia
In the wake of the August 2017 financial scandal surrounding the Commonwealth Bank of Australia, the Australian government sought to follow in Japan’s footsteps by strengthening its anti-money laundering laws and regulating digital currencies. This differed slightly from the view in 2015 that the Aussie government would seek a “hands-off” approach to cryptocurrencies. Still, the lack of more concise regulation has purportedly had a negative impact on the country as the end of 2017 saw Australian cryptocurrency brokers halt Australian dollar deposits. December 2017 also saw an issuance from the Australian Taxation Office (ATO) which hinted at the way potential future regulation could go. The ATO guidance stated: