As more and more people are getting involved with cryptocurrencies in some way or the other, particularly retail, professional investors and regulators have taken special interest in the industry.
However, it is not just bitcoin that most people are looking at the space of cryptocurrency has developed with many coin offerings. This was explained in a special report by CNBC (2017), explaining the feature and block chain technology that is used in many big corporations. The developments have brought different responses from regulators all over the world in many different areas. Every authority has looked at other parts of the world from trading to mining and analysed how the same should be regulated (Michael, Cohn and Butcher, 2018). The following explains the regulation of cryptocurrency all over the world:
Exchanges, mining and trading
The regulation of exchanges, mining and trading is related to the manner in which the cryptocurrencies are traded. There is a very big debate between many jurisdictions regarding the classification of cryptocurrencies. There is a big confusion about the same being commodities or securities and the way they would be classified as per the present operative law. Some countries have moved to the introduction of new laws in this field. Another area in which the regulators are laying their focus on is on mining operations. Mining is the process in which the block chain of cryptocurrency transactions is validated. Mining involves huge electricity consumption and purpose built computers and the same has concerned the governments of China (Iansiti and Lakhani 2017).
Crowd funding and Initial coin offerings
Initial coin offerings also known as ICO is one of the ways in which companies can raise their money by issuing a new digital token in return for cryptocurrency such as ether or bitcoin. This process when looked in an in depth manner has proved to be controversial because of many frauds where fake establishers of companies ran away with money (Hileman and Rauchs 2017).
There is a very clear risk in investing in ICO as many companies are looking to raise money without having any products made yet. As part of many jurisdictions, regulations around ICOs are in a grey region however, some countries have looked to bringing them back together in the regulatory fold (Luther 2016).
With the proper growth of cryptocurrency, professional investors are looking to be part of the space. Cryptocurrencies have been understood as risky as they are prone to many hacks and is many times less regulated considering the nature of the given exchanges. Resultantly, there has been a very active drive to bring financial products in a regulated manner as part of the traditional market. An example of bitcoin future products is offered in the United States by the CBOE and CME. Nonetheless, getting financial products on the market is not very easy. In the United States, many attempts are made to regulate the bitcoin trade however the same when launched was not very successful. Different countries have taken different approaches to regulate cryptocurrencies so that they are able to establish the crypto hubs in a very simplified manner (Mancini-Griffoli et al., 2018).
The investors in Asia have been a major in cryptocurrency trading especially with respect to bitcoin. Over the past few years, different type of Asian countries have played important players in the cryptocurrency markets. A few years back China was a major player in the cryptocurrency investment. Later, a regulatory crack down took on the cryptocurrency markets and soon the second largest economy of the world changed the position. Japan and Korea became the largest drivers of the crypto markets. In the year 2013, China was one of the biggest drivers of bitcoin price. The Chinese soon saw that at that time it was alternative investment to the stock market and housing market were becoming very risky. Since then, Chinese regulators have had a negative feeling about cryptocurrency. In the year 2014, the Chinese regulators ordered the banks to close accounts that are opened by investors trading in important currencies. In 2017, China banned the bitcoin trading and since then China continued to screw other parts of the cryptocurrency industry. A similar situation took place in Japan and South Korea as well (Dodgson et al., 2015).
While Asia is regarded as the biggest drivers of cryptocurrency, the United States has become an important place for new investment in the Europe market. Most of the major economies in the West is introduced with important laws as part of the cryptocurrency. The approach of the United States in regulating cryptocurrency has been in association with the present laws instead of introduction of the new ones. At the end of 2017, the Securities and Exchange Commission issued a warning notice to the investors in the US.
There has been many debate in the US about the cryptocurrency regulation rules and Securities and Exchange Commission has clearly stated that bitcoin cannot be regarded as securities any further. However, some coins created out of the ICOs can be treated as securities. It is not just the ICO market that the US is looking for, there has been many other changes that have taken place from professional institutional investors who want to get involved in the cryptocurrency space. Due to the lack of regulation and problems in buying crypto assets on exchanges, the same has been laid off. Many people feel that the regulations did not offer proper protection and thus, the investors did not bother to make investment in cryptocurrency (Fung and Halaburda 2016).
Much of what happened in the US regarding cryptocurrencies was repeated in the United Kingdom as well. There was no legislation but many warnings about the associated risks were signalled at. The Financial Conduct Authority stated that ICOs are very high-risk speculative investments. It focuses on the fact that ICOs are much unregulated and it offers no protection to the investors. They have huge volatility rate and it may become a source of fraud. British lawmakers have been taking interest in the crypto space. The parliament of UK has launched digital currencies and has distributed the same as part of block chain. The aim was to analyse the impact of the new technology and examine the response of regulatory from the FCA and the Bank of England (Iansiti and Lakhani 2017).
The European Union comprises of at least 28 nations all of which has regulations related to cryptocurrency. The law makers of the EU have passed a new law as per which money laundering shall be tackled in an effective manner and protection for the same shall be granted. The law however has still not come into existence making cryptocurrency volatile as part of investment.
Collective efforts are made by the regulators and governments to understand the future of cryptocurrency and the block chain. Some countries such as China have come done while some others, particularly the small nations and territories have welcomed them warmly. Every person is approaching technology in a different manner. However, one thing that seems to be clear at the end of the discussion is that over the course of time and especially in the coming year new laws will be made and the same will come into consideration as cryptocurrency brings the blockchain and cryptocurrency as part of the regulatory world (Hileman and Rauchs 2017).
Dodgson, M., Gann, D., Wladawsky-Berger, I., Sultan, N. and George, G., 2015. Managing digital money.
Fung, B.S. and Halaburda, H., 2016. Central bank digital currencies: a framework for assessing why and how.
Hileman, G. and Rauchs, M., 2017. Global cryptocurrency benchmarking study. Cambridge Centre for Alternative Finance, 33.
Iansiti, M. and Lakhani, K.R., 2017. The truth about blockchain. Harvard Business Review, 95(1), pp.118-127.
Luther, W.J., 2016. Bitcoin and the future of digital payments. The Independent Review, 20(3), pp.397-404.
Mancini-Griffoli, T., Martinez, M.S., Peria, I.A., Ari, A., Kiff, J., Popescu, A. and Rochon, C., 2018. Casting Light on Central Bank Digital Currency.
MICHAEL, J., COHN, A. and BUTCHER, J.R., 2018. BlockChain technology. The Journal.