Crypto regulation: Adoption driver or obstacle?

by Blocks99

8 months ago

Countries around the world take different approaches to crypto regulation, from laissez faire to highly restrictive. But they all share one thing: the need to prepare for the growing role of crypto.

Interestingly, some jurisdictions have introduced clear and strict crypto regulation while at the same time welcoming cryptocurrency trading and services. Cryptocurrency in its current state is not considered a substitute for money. Even the friendliest of nations do not consider crypto as a substitute for their national currencies. In addition, all regimes place high priority on anti-money laundering and financing of terrorism measures. Here we look at the current regulatory frameworks in different regimes, with a special focus on Europe and Asia.


True to its traditional role as a center of international finance, Switzerland has taken a proactive approach to digital assets. After the city of Zug had earned the name “Crypto Valley” based on its friendly stance regarding cryptocurrencies and crypto-related startups, Swiss Economics Minister Johann Schneider-Ammann went a step further, announcing the positioning of Switzerland as a “Crypto Nation.”

Both the Swiss Federal Government and the Swiss Financial Market Supervisory Authority (FINMA) recognize the potential of DLT and blockchain in different sectors of the economy. On February 16, 2018, FINMA published revised guidelines on the regulatory treatment of initial coin offerings (ICOs). FINMA stated that, due to the fact that each ICO is designed differently, whether and which financial regulations are applicable must be decided on a case-by-case basis. FINMA differentiates between payment tokens (cryptocurrencies), utility tokens and asset tokens. Payment tokens are defined as tokens that are used as a means of payment or as a means of money or value transfer. Utility tokens are those that provide digital access to an application or service by means of a blockchain-based infrastructure. Asset tokens represent assets such as a debt or an equity claim against the issuer. Since cryptocurrencies are treated as assets or wealth in the country, they are subject to the same wealth and income tax as other securities and are to be reported in the Swiss franc equivalent.


While slower to formulate its crypto strategies than Switzerland, Germany has made considerable progress in the area over the past year. The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht, BaFin) regards cryptocurrencies as units of account, comparable to other financial instruments. No BaFin license is required for the mere use of bitcoins other cryptocurrencies as a substitute currency for sales activities: an entrepreneur can accept cryptocurrency without problems as payment for his services or goods.

In November 2019, Germany made headlines when German Parliament passed a bill to enable the country’s banks to store and sell cryptocurrencies. The German government will regard bitcoin as the equivalent to legal tender for tax purposes when used as a means of payment, according to an official document. As per the fifth EU Money Laundering Directive (EU Directive 2018/843), the member states of the European Union are obliged to treat providers of cryptocurrencies as subject to anti-money laundering (AML) law. Providers of crypto custody services or any exchanges with wallets in Germany require a license from BaFin as of January 1, 2020. Companies already active in the area will get a grace period if they notify BaFin of their intent before February 1, and file their application before June 30, 2020. This means that exchanges such as Binance (based in Malta) or Litebit (based in the Netherlands) must notify BaFin of their intention within this timeframe to continue operating in Germany.


Taking one step a time to open its doors for cryptocurrency companies, the French government has recently established a favorable legal framework for ICOs. This legislation was included in Act No. 2019-486 of May 22, 2019, on the growth and transformation of enterprises (the PACTE Act), which contains measures facilitating the growth of small-to-medium-sized enterprises (SMEs). Cryptocurrency trading platforms and brokers have been included in AML legislation since December 2016. The cryptocurrency bill allows firms that want to issue new cryptocurrencies or trade existing ones to apply for certification.

In March 2018, financial authorities warned investors about the risks of purchasing crypto assets from unregistered sources and published a list of Websites of companies selling such assets without authorization from the Autorité des marchés financiers (AMF). On April 26, 2018, a new French regulation appeared for cryptocurrency taxation favoring investors by reducing the flat tax rate from a hefty 45% to 19%. This followed a new classification of Bitcoin as “movable property” by the Council of State.


Malta has earned a reputation as the most attractive destination for cryptocurrency exchanges because of its relaxed structure. While cryptocurrencies are not classified as legal tender, they are recognized by the government as “a medium of exchange, a unit of account, or a store of value.” Malta’s regulatory structure can be summarized with three pieces of legislation:

1. The MIDA Act or Malta Digital Innovation Authority Act certifies the developed DLT platform software and how the software will be managed.
2. As per The Virtual Financial Assets Act (VFAA), the regulatory bodies can work either directly or indirectly with various financial assets that include the ICOs, custodian wallet providers, token exchanges, brokerages, nominee service providers, portfolio managers and different investment advisers. The VFAA Act also came up with guidelines and requirements for a security token offering (STO) and an ICO.
3. The Innovative Technology Arrangements and Services Act (ITAS Act) establishes a regime for the registration of technology service providers and the certification of certain technology arrangements. These certifications are offered by the MIDA.

Based on these three laws, Malta is regarded as a leader in terms of security and transparency for investors and consumers. These laws not only cover cryptocurrencies, exchanges and ICOs, but are also applied to other blockchain technologies that may not be considered financial systems due to their nature.


Classifying cryptocurrencies as commodities, Liechtenstein does not regard digital assets as money. In June 2019, the Liechtenstein Token and Trusted Technologies Law (TVTG bill) was proposed in parliament. The TVTG bill, also commonly referred to as the Blockchain Act, makes Liechtenstein the first country to comprehensively regulate the token economy. It covers blockchain technologies under the term “TT systems” or “transaction systems based on trustworthy technologies.” The Blockchain Act also incorporates measures to combat money laundering and terrorism financing by subjecting service providers to due diligence rules and regulations. However, no license for using and producing virtual currencies is required.
Liechtenstein is a member of the European Free Trade Association (EFTA) and the European Economic Area (EEA). This means crypto companies based or represented in its jurisdiction enjoy easier access to the common European market.


As an Asian business hub, Singapore stands out as a hotbed for crypto businesses to thrive. The country has no regulatory measures that put the digital asset market under the full control of the authorities. Cryptocurrency exchange operators that enable trading of tokens constituting “capital market products” need to seek approval of the Monetary Authority of Singapore (MAS). Exchanges that do not allow trading of capital market products regulated under the Securities and Futures Act (SFA) are currently not subject to regulation.

As interest of institutional investors is growing, Singapore Central Bank plans to bring Bitcoin and other similar cryptocurrency futures traded on approved exchanges under its regulation. MAS is seeking feedback on this proposal. Singapore requires cryptocurrency exchanges to be compliant with international AML and counter financing of terrorism (CFT) requirements. Although the country is perceived as having a relaxed legislative attitude towards cryptocurrencies in general, its AML and CFT laws are uncompromisingly strict.


The State Bank of Vietnam (SBV) issued a decree on cryptocurrency on October 30, 2017. According to news reports, the bank determined that Bitcoin and other virtual currencies are not legal means of payment. The move effectively outlawed the issuance, supply and use of cryptocurrencies. Those found in violation of the decree and other relevant legal principles face fines of up to 200 million dong (around US$ 9,000).

However, in November 2019, the SBV changed its position, announcing plans for a new decree to regulate the cryptocurrency uses in Vietnam. The globally leading crypto exchange Binance has stepped up its presence in the country, calling Vietnam a future crypto and blockchain hub.


As one of the more thoroughly regulated jurisdictions, Japan maintains a balance strictness and friendliness toward cryptocurrencies, ICOs, STOs, derivatives and exchanges. It has clear AML laws and taxation regulations in place.

The Payment Services Act of Japan defines cryptocurrency as:

1. Property value that can be used as payment for the purchase or rental of goods or provision of services by unspecified persons, that can be purchased from or sold to unspecified persons and that is transferable via an electronic data processing system;


2. Property value that can be mutually exchangeable for the above property value with unspecified persons and is transferable via an electronic data processing system.

The law also states that cryptocurrency is limited to property values that are stored electronically on electronic devices, excluding currency and currency-denominated assets.

Under the Payment Services Act, only business operators registered with responsible local finance authorities are allowed to operate a cryptocurrency exchange business. From April 2020 onward, crypto exchanges operating in Japan will have to manage users’ money separately from their own cash flows. This means finding a third-party operator to store users’ money (this can be a trust company or any other similar entity).

Japan’s Financial Services Authority (FSA) reserves the right to rescind registration of a cryptocurrency exchange business or suspend its business for up to six months in cases where:

1. The exchange business no longer meets one or more of the requirements for registration,
2. The FSA discovers that the exchange business applied for registration illegally, or
3. The exchange business violates the Payment Services Act or orders based on the Act


Domestic cryptocurrency exchanges are under a blanket ban in China. On September 4, 2017, seven Chinese central government regulators – the People’s Bank of China (PBOC), the Cyberspace Administration of China (CAC), the Ministry of Industry and Information Technology (MIIT), the State Administration for Industry and Commerce (SAIC), the China Banking Regulatory Commission (CBRC), the China Securities Regulatory Commission (CSRC) and the China Insurance Regulatory Commission (CIRC) – jointly issued the Announcement on Preventing Financial Risks from Initial Coin Offerings to protect investors from financial risks.

Chinese traders still constitute a large volume of total crypto business by using Websites that are not blocked by China’s Internet firewall. The country is also a crypto mining hub. However, Beijing continues to shut down exchange Websites, offices and their social media accounts to enforce a complete ban on crypto trading within the country.

At the same time, China’s central bank, the PBOC, says it is planning its own digital currency. China has also shown great interest in broader applications of blockchain technology. On January 2020, China’s cryptography law came into effect, which is perceived as an attempt open the doors for increased research and innovation in blockchain technology.


With stiff penalties for those attempting to sell digital tokens without due approval from the Securities and Exchange Commission (SEC), Thailand ranks among the more restrictive regimes. At the same time, since the formation of a civilian government in 2019, the country has shown a more open attitude.

Thailand initially adopted cryptocurrency rules in May 2018 via a royal decree, but the country hasn’t seen many companies coming forward to get authorized and launch operations yet. It has provided few licenses to exchanges so far. Exchanges, brokers and dealers are required to apply for licenses from the Finance Ministry, while ICO portals must be approved by the SEC.


The US is probably the most discussed jurisdiction when it comes to cryptocurrency, with close attention paid to the Securities and Exchange Commission (SEC). The country’s different financial authorities have adopted various stances on the topic of digital assets. The US Financial Crimes Enforcement Network (FinCEN) does not consider cryptocurrencies to be legal tender. The Internal Revenue Service (IRS) regards cryptocurrencies as property – and has issued tax guidance accordingly.

The SEC has been strictly monitoring ICOs for fraud and other types of misconduct, discussing the treatment of tokens as securities and distributing licenses to exchanges following rigid compliance requirements. Whether a cryptocurrency classifies as a security is the biggest debate the industry has witnessed. In April, the  released new guidance on cryptocurrencies, though those guidelines are not yet law. The Commodities Futures Trading Commission (CFTC) has adopted a friendlier, “do no harm” approach, describing Bitcoin as a commodity and allowing cryptocurrency derivatives to trade publicly.

The path ahead

With the current discussion of central bank digital currency (CBDC) in many different countries and increasing investor interest in digital assets, the pressure to develop the right regulatory setup can be expected to remain high. Clearly, smaller countries with a traditional focus on finance like Liechtenstein, Singapore or Switzerland, have assumed pioneering roles. Perhaps the bigger nations of Europe and Asia would do well to follow suit.

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