Globally, regulations around cryptocurrencies have been investigated by governments and financial bodies as cryptocurrencies have grown. Some countries, like China, have banned the cryptocurrency exchanges, whilst others such as the UK have not yet enacted any laws. In contrast, other national bodies have restricted the use of encrypted currency.
There have been several warnings issued by governments and central banks about the risks of investing in the cryptocurrency markets, and the publication of newspaper articles in which it is reported that hacks have stolen assets have added to the concerns that whilst the currencies offer privacy, with transaction fees much lower than standard banks, they are not guaranteed by the state which issues the national currency. Warnings have also been issued about the high volatility of cryptocurrencies and the unregulated nature of the trading platforms, making them higher risk, with no legal protection against loss.
Due to concerns that cryptocurrencies provide an opportunity for money laundering, drug or people trafficking and other illegal activities, some countries have enacted laws on money laundering, counter-terrorism and organised crime through encrypted currencies. Banks are already legally obliged to conduct due diligence. Morocco, Pakistan and Vietnam have banned all activities involving cryptocurrencies. In Qatar and Bahrain, citizens can only deal in cryptocurrencies outside the country’s borders. Bangladesh, China and others have imposed indirect restrictions by barring financial institutions within their borders from processing cryptocurrency transactions.
Already, a few countries have begun to regulate initial coin offerings (ICOs), which use cryptocurrencies as a way to raise capital. The regulations depend on how an ICO is classified. In New Zealand, different rules apply to depend on whether the ICO is offered as a debt or equity security, managed investment product, or a derivative. The Netherlands is similar, though the rules applying to a specific ICO are assessed on a case-by-case basis.
Cryptocurrencies are seen more as an opportunity than a threat in some countries. Although it encrypted currencies are not recognised as legal tender in Spain and Luxemburg, the governments there see potential in the technology behind it and have built a cryptocurrency-friendly regulatory regime to attract investment in the technology companies behind them. Other countries have gone a step further, including Lithuania and Venezuela, which have developed a national cryptocurrency of their own. In February 2019, US investment bank JP Morgan launched a crypto-currency, known as the JPM Coin, to help settle payments between clients in its wholesale payments business.
In October 2018, UK officials published a range of regulatory steps around crypto-assets and blockchain technology, acknowledging that cryptocurrencies can be used to benefit the financial services sector, as well as other industries. The main priority for authorities is to mitigate the risks of cryptocurrency activities. UK authorities do not see any regulatory barriers to further adoption of blockchain technology, but state that further development is needed for opportunities to be realised and decisions made in relation to how cryptocurrency assets are to be taxed.
