BY ANDREW TARPEY
Few financial assets have produced such varied reactions and opinions as cryptocurrencies. Once derided as “rat poison squared” by famed investor Warren Buffett, and vilified due to it being the payment method of choice for the illegal darknet marketplace Silk Road, the cryptocurrency market is as popular as ever. Well over 100 million people worldwide are now using crypto, and Bitcoin, the most popular cryptocurrency, set an all time high on October 21 when it closed at almost USD$66,000, fuelled by the first U.S. Bitcoin future exchange-traded fund. So what to make of this simultaneously beloved and derided asset? Is it a legitimate payment and investment vehicle like government-backed currencies, or too risky due to its historical volatility? The jury may still be out on that question but, like individuals, countries are having many varied reactions and tolerances to this relatively new financial phenomenon.
There isn’t much question that, as it grows in popularity, cryptocurrencies will face more regulation from governments around the world. But what exactly should that regulation look like? From recent developments, we can say that there’s unlikely to be a uniform set of global policies on the matter. Some Latin American countries have made it quite clear that they’re taking a crypto-friendly stance. Last month, El Salvador became the first country to make Bitcoin a legal tender. The new law, which overwhelmingly passed the Salvadoran Congress, means that all businesses in El Salvador must accept Bitcoin as payment unless they can’t provide the technology necessary for the transaction. The move seems to be a risky one for the impoverished nation, largely due to the volatility that Bitcoin has experienced in recent years. However, President Nayib Bukele has made the case that it will bring greater access to financial services to the country’s citizens, as only 30% of Salvadorans have a bank account. El Salvador is a country that relies heavily on international remittances from Salvadorans living and working abroad, and the government sees this as a way to make it easier for those Salvadorans living elsewhere to send money to relatives at home. As part of the introduction of Bitcoin as currency, the government is issuing a digital wallet app to every citizen, including $30 worth of Bitcoin. The public hasn’t been as excited about the move, with polls showing almost 70% of people opposing the issuance of Bitcoin as a legal tender.
Colombia is also embracing cryptocurrencies, as shown by the recent introduction of 50 Bitcoin ATMs in the country. The increase in cryptocurrency uptake in the country has driven its regulators to introduce crypto tax guidelines along with anti-money laundering regulations, and they are now developing a project to allow some of the larger banks to work with well-known international cryptocurrency exchanges to test different types of services. This is quite a change from the status of crypto just three years ago, when Colombian banks closed down accounts held by crypto exchange Buda.com, as they were unsure about regulatory obligations when dealing with crypto. The increase in the number of users has forced the government’s hand in issuing regulatory clarity on the matter.
While Latin America seems to be on board the crypto bandwagon, the same can’t be said for China, which last month declared that all cryptocurrency-related transactions are illegal. Chinese authorities have had a distaste for crypto for some time and banned cryptocurrency trading in 2019, but trading had continued online through foreign crypto exchanges. Now they’ve issued a harsh crackdown in which the government has deemed all cryptocurrency transactions to be “illegal financial activities”, and has warned that those engaging in such transactions will be arrested and prosecuted. Over twenty cryptocurrency companies, including world-leading crypto exchanges Binance and Huobi, have been forced to leave the country. This is significant change in the global crypto market, as China accounted for 90% of the world’s Bitcoin trading just five years ago, and it shows what a threat the authoritarian government sees in a decentralized currency that it has no control over.
The United States government has been mostly tight-lipped about cryptocurrencies, with the Internal Revenue Service deeming them to be a taxable asset in 2014 but authorities saying little regarding their regulation. However, most analysts agree that the surge in ownership of crypto will force the federal government to issue a declarations about regulations at some point. Earlier this month the head of the Securities and Exchange Commission (the regulator and overseer of financial markets) hinted that he sees regulation as inevitable, stating that crypto investors “don’t have the benefit of that basic bargain that we protect people against fraud and manipulation… People are going to get hurt.” Treasury Secretary Janet Yellen has also addressed the matter of cryptocurrency regulation when she convened top financial regulators in July to discuss the matter. It’s expected that Washington will issue more guidance in the near future, but as with other countries it’s likely that the question won’t be whether crypto will be regulated, but rather what that regulation will look like.
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