The Most Likely Regulations Coming to Crypto

Where is Cryptocurrency at Now?

Governments began with regulating buying and selling, but have moved on to regulating other aspects. For example, China has banned industrial scale mining of cryptocurrencies and has introduced its own digital Yuan. The EU is introducing a digital wallet of it’s own. So while some countries are implementing “you cannot do this” type policy, others are implementing “You must do this” type policy. Regardless of location, the regulation of cryptocurrency is beginning to take shape.

Much of the discussion is about preventing the funding of illegal activity. One case is Iran, where cryptocurrencies are actively banned from management by financial institutions that are not the central bank. The United States has also taken aim at the prevention of tax evasion and money laundering by debating regulations surrounding cryptocurrency, with no major conclusions reached as of yet. On the flip side of this, El Salvador has fully embraced Bitcoin as legal tender. So there’s clearly a wide range of regulatory opinions occurring around the world. How might that change?

Possible Regulations

Already considered in the United States, one regulatory measure coming could be large sum reporting. Transfers above a certain value (e.g. $10,000 USD) would have to be reported to a central authority come tax season; for example in the US, that authority is the IRS. This measure keeps a government eye on large sums of money moving and would make it criminal to not report this, which would be visible on an audit anyways. Many cryptocurrencies like Bitcoin have open ledgers that are traceable as well, so it’s not like people are going to be able to get away with just not reporting. It’s a fairly simple thing to track and has been implemented in previous banking regulations. So it won’t be surprising to see this new regulation pop up everywhere.

Another potential regulation could be something akin to accredited investors. Where an individual or institution is required to have a specific net worth or meet other requirements in order to attain a license to trade assets under the permission of a government body such as the SEC. This would give trusted individuals exclusive trading rights that allow them to circumvent other certifications that non-credited investors have to acquire, but only when certain conditions are met.

Overall, a system like this would create a lower friction environment for whales and other major stakeholders in the field of regulated cryptocurrencies. On the flip side, low net worth individuals may be shut out of participating in token sales, or other regulated cryptocurrencies, much like they are now with respect to securities such as stocks.

Sanctions and Adoption

International regulations are a concern as well. American regulators have expressed concern that cryptocurrencies are being used by sanctioned states like Iran and Venezuela to dodge said sanctions. These transactions cannot be blocked by organizations like central banks, the IMF, etc. It wouldn’t be out of the question to see international regulatory bodies to be created or branches of current ones to exclusively manage cryptocurrency transactions in order to enforce these sanctions.

In addition to the above, it’s also within the realm of possibility for governments to adopt sanctioned currencies. That is, only certain currencies will be permitted to be traded, held, etc. With all of the altcoins being created on a regular basis, it’s fair to say that governments and private institutions couldn’t regulate and require them all to be in a register. Therefore, sanctioned currencies would be a way to reduce the strain of managing regulations nationally and abroad. While it may not be possible to reasonably stop the creation of altcoins, you can’t reasonably stop the entire counterfeiting industry either. But there are certainly attempts made.

Regulation doesn’t have to be all bad though. Nations like El Salvador are adopting Bitcoin as legal tender, and this is a regulation that has a lot of benefit to both Bitcoin and the entire cryptocurrency community. While it is only recent news at this time, it does present exciting opportunities for cryptocurrencies to be perceived as a legitimate form of currency.

Trends in Regulation

The general trend with cryptocurrency regulations so far is the following. Nations with strong currencies compared to other nations are in favor of regulating cryptocurrency for the purposes of preventing tax evasion and fraud. Nations that rely heavily on a labor class like Algeria are in favor of banning cryptocurrencies. Nations that are subject to the US sanctions acts are in favor of cryptocurrency as well, but only on their terms.

Iran is a particular spot of interest for cryptocurrency, as it has invested a decent amount into the field of mining. Jiang Zhuoer, CEO of B.TOP speculated over Twitter that China’s old mining equipment may be sold abroad. Perhaps to Iran, who have been increasingly warm to the Yuan in favor of the US dollar.

21% of El Salvador’s GDP is made up of remittances according to data from 2019. With that amount of cash coming in from foreign workers, Bitcoin as legal tender is spectacular for El Salvadorans and anybody else working from abroad. One could save on bank fees by converting cash made into Bitcoin and then transferring it to another wallet rather than over a border. Other nations that have high remittance contributions to their economies may want to follow in El Salvador’s footsteps, if their adoption of Bitcoin as legal tender works out.