The global spread of cryptocurrencies and blockchain creates an urgent need for regulations and governments are finally starting to recognise their legitimacy. As blockchain technology becomes integral to more aspects of society, from finance to arts and culture, the need for new laws to keep up with the growth has become increasingly important. A lack of regulation could cause significant economic issues further down the line, especially with the emergence of DeFi and NFTs.
Earlier this year, the United Kingdom’s economic and finance ministry announced plans to see stablecoins become a valid form of payment. The announcement was part of a more comprehensive plan to turn England and Wales into a global crypto-asset technology and investment hub. London has been the financial capital of Europe for decades, being home to some of the world’s largest financial institutions. However, since the UK’s withdrawal from the European Union following Brexit, some of London’s leverage within European finance has diminished.
More recently, the UK government asked the Law Commission to review current laws relating to digital assets to ensure it keeps up with their expansion. The proposals published by the commission aim to accommodate digital assets by providing further legal recognition and protection. The paper looks into how existing personal property laws apply to digital assets and is yet another step toward the government’s crypto adoption goals.
The plans to turn Britain into a digital currency hub could help maintain London’s position as a financial nerve center. The former Chancellor of the Exchequer, Rishi Sunak, reiterated the purpose of this new regulation, explaining that it’s his ambition to make the UK “a global hub for cryptoasset technology, and the measures we’ve outlined today will help to ensure firms can invest, innovate and scale up in this country.”
Elsewhere in Europe, crypto regulations have been under greater scrutiny due to the recent conflict between Russia and Ukraine. As a result of international economic sanctions designed to punish Russia, people within the Federation have been looking at currencies like Bitcoin as an alternative to the Rouble. In February of this year, Russia’s Finance Ministry submitted a bill to Legalize cryptocurrency investments. Though this bill cements the country’s current ban on digital currency as a means of payment, regulation of digital currency as an investment asset could spark a wave of adoption as Moscow looks to stabilize the economy during and after the conflict.
Ukrainian officials have also looked to crypto to the economic stress caused by the invasion. One week before the attack, Ukrainian President Volodymyr Zelenskyy signed the “On Virtual Assets” bill, establishing a legal framework for Ukraine to operate in the digital currency market. The very nature of cryptocurrency means that holders can make cross-border transactions without the need for financial intermediaries. With the nation’s financial institutions facing a legitimate physical threat of destruction, adoption of this type of transaction could become a mitigating factor in the Ukrainian crisis.
Industry leaders and officials use cryptocurrencies to fund humanitarian projects, relocate refugees, and supply the military. Their use in Ukraine could set a precedent as other nations look for solutions to their crises.
Crypto Regulation in the US
In the US, the regulation of digital currency is the jurisdiction of the SEC, or Securities and Exchange Commission. They aren’t considered legal tender by the Financial Crimes Enforcement Network (also known as FinCen) but rather “money transmitters” because tokens have “other value substitutes for currency.” The IRS also doesn’t consider cryptocurrency as legal tender but has issued tax guidance regarding crypto as they still believe it to be a digital representation of value that can be used as a medium of exchange or store of value.
US crypto laws remain relatively vague, and several significant issues have arisen, including Ripple’s ongoing legal battle with the SEC. However, the government in Washington, DC, seems to be planning for the future. President Joe Biden’s Executive Order on Ensuring Responsible Development of Digital Assets was released.
Though the crypto community was initially skeptical of what the order could bring, most were surprised that the executive order acknowledged cryptocurrencies as a crucial part of modern finance. Compared to previous statements by the US government on cryptocurrency, this executive order is positive and a sign that official attitudes towards digital currency are changing. Though the order contained no specific regulatory actions, it outlined a strategy for dealing with future regulations. It signals that governments have realized there is no choice but to embrace rather than shun it.
The current size of the cryptocurrency and blockchain industry and the recent explosive growth of the sector have shown the potential implications of cryptocurrencies on global financial markets. This is evidence of the importance of prioritizing cryptocurrency regulations at an international level. Recent actions taken by major world economies to regulate cryptocurrency should hopefully set the tone for governments worldwide to look at the sector as a serious and viable component of their national economy. Nations must take steps toward international regulation as soon as possible to prevent ambiguity and inconsistency in cross-border transactions.