Cryptocurrency at a crossroads: The world’s regulatory puzzle
Cryptocurrency at a crossroads: The world’s regulatory puzzle
Balancing innovation with consumer protection, nations take vastly different approaches to governing crypto.
Last summer, an unknown woman named Hailey Welch became a social media sensation. A provocative sexual tip she gave during a street interview quickly turned her into the "Hawk Tuah girl." Whether or not you've heard of her, what’s important to know is that she leveraged her newfound fame in all the familiar ways of this decade: launching a podcast, founding an animal rights organization, and, of course, creating her own cryptocurrency—HAWK.
On December 4, HAWK debuted on the Solana platform at a price of $0.005492. It skyrocketed by 900% to a market cap of half a billion dollars before collapsing almost immediately. Today, the coin’s market cap stands at $2.6 million. Some have alleged that it was a classic pump-and-dump scheme. Welch denies any involvement, but that is almost beside the point. The takeaway remains the same: the crypto market is still rife with opportunities for exploitation.
According to the FBI, $5.6 billion was lost to crypto scams in the United States last year alone. Much of this stems from the perception of cryptocurrency as an easy path to wealth, which makes users prime targets for scammers. The ripple effects of such scams extend beyond individuals; the lack of regulation contributed to the systemic collapse of crypto exchanges and trading platforms in 2022. This instability, a year later, impacted banks with deep ties to the crypto industry, leading to their own collapses.
The risks in the crypto market are numerous: from its use in illegal activities such as money laundering and terrorist financing, to tax evasion, market manipulation, and extreme volatility.
A regulatory need
To balance the market’s potential for innovation with the need for consumer protection and financial stability, there is an urgent need for a comprehensive regulatory framework. However, the nature of such a framework remains highly controversial.
According to a study published in June, the global regulatory landscape is particularly fragmented:
- 58 countries have adopted a supportive stance on regulating crypto.
- 4 countries recognize cryptocurrencies as a legal entity.
- 14 countries have implemented outright bans on crypto markets, while 9 countries have enacted partial bans.
- 46 countries have restrictive regulations aimed at reducing risks.
- 71 countries have not taken regulatory action—37 of which have expressed concerns but remain inactive (including Israel), while the other 34 deliberately follow a free-market approach.
United States
Bitcoin prices and overall market enthusiasm often rise in response to U.S. political developments. Despite crypto's aspiration to exist outside national economic systems, it is deeply influenced by the world’s largest economy.
While smaller economies, like El Salvador, may adopt Bitcoin as legal tender, their impact on the global market is negligible. The United States has not established a dedicated crypto framework, instead applying existing laws to the market. This approach frustrates industry players, who have long advocated for the Commodity Futures Trading Commission (CFTC) to oversee crypto markets rather than the Securities and Exchange Commission (SEC), which they view as overly aggressive.
The proposed 21st Century Financial Technology and Innovation Act, which passed the House of Representatives but faced opposition from President Joe Biden, aims to shift crypto oversight to the CFTC. However, the CFTC’s significantly smaller size and limited resources raise concerns about its ability to regulate effectively.
European Union
In May 2023, the European Union introduced MiCA (Markets in Crypto-Assets), the first comprehensive global regulations for the crypto market. MiCA integrates cryptocurrencies into existing financial frameworks while addressing unique issues, such as distinguishing between currencies designed for value transfer, asset-backed tokens, and security-like tokens.
While still awaiting final approval, MiCA sets clear rules for the supervision of digital assets. It requires any company issuing or trading cryptocurrencies to obtain a license and mandates identification of both senders and recipients for all transactions, regardless of the amount. Additional regulations are planned for wallets holding more than €1,000, requiring full identity verification akin to banking protocols.
China and India
China and India are home to the strictest crypto regulations globally.
In China, which was a hub for mining and trading during the previous decade, all crypto activities are now banned. Crypto exchanges and mining companies are prohibited from operating within the country.
India has attempted similar bans, but they were overturned by the Supreme Court on technical grounds. Currently, the Indian government is working on detailed legislation to outlaw all digital asset dealings, but delays have left the market in uncertainty.
United Kingdom
The UK has long sought to position itself as a crypto hub. Rishi Sunak, as Chancellor of the Exchequer and later Prime Minister, championed initiatives like launching a digital pound and issuing government NFTs. However, none of these efforts have materialized so far.
Local regulators are actively developing clear frameworks. The Financial Conduct Authority (FCA) oversees the market, while the Crypto Asset Taskforce (CATF) focuses on advancing regulations. The UK aims to integrate crypto into existing financial systems with tailored adjustments for its unique challenges.
South Korea and Japan
South Korea and Japan maintain relatively progressive stances toward crypto, focusing on consumer protection alongside market access.
Japan’s cautious but steady approach stems from its experience with the 2014 Mt. Gox scandal, which led to the collapse of what was then the world’s largest crypto exchange. Japan introduced crypto regulations in 2016 and updated them in 2018. It declared Web3 development a national priority in 2021, making Japan a global leader in crypto regulation.
South Korea implemented the Act on the Protection of Virtual Asset Users (VASPs) this summer, requiring due diligence from crypto exchanges and prioritizing user protection. However, public enthusiasm remains subdued, as evidenced by the record $34 billion trading volume seen during a political crisis last month, which briefly depressed Bitcoin prices globally.
