Current State of Crypto Affairs
The market cap for the cryptocurrency market has increased by over 1200% over the past year. As a greater portion of each countries citizens are exposed to the world of crypto, governments have been imposing various degrees of regulation. They are doing so to protect their citizens against the burgeoning number of risks and scams associated with the market, often coming in the form of ICO’s. There is also a party of people who think they are regulating the space due to the potential implications crypto and a decentralized currency could have on a countries internal and external power dynamics. Regardless of the reason, many countries have recently made regulatory changes toward the world of crypto and in the future most countries will have some form of regulation in place. Anyone interested in this space or investing in it should be aware of the disposition key countries have taken toward cryptocurrency as the implications are substantial.
Japan has been a forerunner in evangelizing cryptocurrencies, namely Bitcoin, after it made Bitcoin a legal form of tender in March of 2017. Since then thousands of businesses have been accepting Bitcoin, fueled by the fact that the Japanese government has lifted an 8% consumption tax on cryptocurrencies. Recently they have begun regulating exchanges by issuing licenses to approved companies to help protect investors. The blueprint that Japan has laid out when it comes to government involvement in cryptocurrency appears to be effective thus far and will help in supporting fintech innovation within their country.
Switzerland has historically been pro-crypto and one of their cities (Zug) has been known as the “Crypto-Valley”. In an effort to vye with Zug as the crypto-hub of Switzerland, the town of Chiasso began allowing its residents to pay their taxes in Bitcoin. Switzerland views cryptocurrencies as assets, not securities and do not require special licenses for such businesses within their country. Their ecosystem of technology companies in the blockchain and crypto space has grown to become a world leader, largely due to government support. Banks in Zurich have even begun offering digital currency products to their clients. That being said, the issues surrounding ICO’s have not been ignored by their regulators. A few days ago the Swiss government stated that they would be investigating several ICO’s to determine if regulatory provisions have been breached.
Like Switzerland, Singapore has historically not considered digital tokens a security. It has been a hotbed for ICO’s, such as TenX ($80M), Golum (~$48M) and Qtum ($15M). Shortly after the SEC made their statement, the Monetary Authority of Singapore stated that they will be regulating some, but not all, of the ICO’s that have taken place.
On July 25th, the SEC made a statement claiming they will be regulating ICO’s (or Token Sales) where the tokens are being used as securities rather than currencies. For more on this, check out my previous post.
Russia is an interesting beast when it comes to figuring out their disposition toward cryptocurrencies, as they have been wavering back and forth over the past year. Last year, their government stated it would put any Bitcoin users in jail for up to 7 years. Earlier this summer Putin met with Vitalik Buterin (founder of Ethereum). Shortly thereafter their stance seemed to become more positive as their Deputy Chief of the Bank of Russia claimed it was going to begin developing its own national cryptocurrency. Which is ironic in itself, given it goes against the entire decentralized nature of cryptocurrencies to begin with. Since then, senior Russian officials have taken a more restrictive tone and are expected to put forth a bill in October regulating the trade of cryptocurrencies. At the moment, Bitcoin and other digital coins are neither permitted nor prohibited.
I saved the granddaddy for last … China. In September, China took a hard stance against cryptocurrencies, making ICO’s illegal and forcing the closure of major crypto-exchanges. This is no surprise, given the level of control the Chinese government has over most walks of life within their country and they clearly consider a decentralized economy a threat. However, this is significant when you consider how much of a heavyweight China has been when it comes to investing in cryptocurrency, specifically Bitcoin. Over the past 2 years, China has accounted for over 90% of the Bitcoin trading volume with over ~1.2T BTC (note, the price of Bitcoin was substantially less 2 years ago then it is today). Over the past 6 months, other countries have ramped up their investment in the space and china has dwindled to an average of 20% of the BTC trading volume. Since they cracked down on crypto, they have sunk to less than 5% of the trading volume in the past week. This caused the markets to shake, as the price of Bitcoin went from ~$5,000 at the beginning of September to just over $3,000 on September 15th.
This recent uptick shows that eventually every country will have some form of regulation when it comes to cryptocurrencies (as they should). Governments need to dance a fine line when it comes to regulating this space. Too much regulation, as is the case with China, and you could significantly hinder innovation in what I believe will be the most transformative technology of the next decade – the Blockchain. Too little regulation and you leave your citizens open to getting burned in the form ICO’s and scams. The direction that influential countries, such as Russia, take towards crypto could be a positive or negative catalyst for innovation in the space. In the case of Russia, they’ve historically been some of the best dancers in the world (Baryshnikov, Pavlova, etc) so lets hope their government continues this twinkle toe’d traditional as they step out onto the regulatory dance floor in the coming months.
Written by: Matt Hibberd