Bitcoin is legal in El Salvador, China bans crypto, Ukraine passed cryptocurrency bill — Here are the top 10 moments of crypto regulation in 2021Canva
On June 9, El Salvador’s legislature voted to grant Bitcoin the status of legal tender, sending shockwaves across the world. Under its President Nayib Bukele, the country began its experiment with Bitcoin on September 7, despite street protests and IMF warnings against such a move.
By making Bitcoin legal tender in the country, its citizens can use it to make payments — whether it's to buy groceries from the neighborhood shop or pay up on bank loans. So far, El Salvador is the only country to officially encourage cryptocurrency for real life transactions.
It has been purchasing Bitcoin on the open market regularly, to add to its currency reserves. Despite recent dips in the value of Bitcoin, the country continues to use Bitcoin as one of its two official currencies — the other being the US dollar — and has the third-largest network of crypto ATMs in the world. In November, El Salvador announced plans for a ‘Bitcoin City’ — a ‘bitcoin bond’ that would pay investors 6.5% annually, and build 20 new schools using the country’s Bitcoin profits.
China’s central bank outlawed cryptocurrency on September 24, when it said that “Virtual currency-related business activities are illegal financial activities,” and warned that it “seriously endangers the safety of people's assets.”
Regulators vowed coordination to stop crypto mining and trade, even though China was one of the largest cryptocurrency markets at the time. The Asian dragon was home to 53% of Bitcoin miners globally in January 2021, declining to zero by September 2021 according to data compiled by the Centre for Alternative Finance at the University of Cambridge.
Multiple reasons to justify the ban have been stated since then, ranging from the need to save the electricity used by Bitcoin miners to the importance of China remaining in control of its financial system.
The immediate result of the ban was a drop in crypto prices and crypto network processing power. Both have reconstituted themselves in other parts of the globe and recovered fully in the three months since then.
China, however, does have interest in a government-controlled cryptocurrency — a Central Bank Digital Currency (CBDC). The country began trials of its Digital Yuan (e-CNY) in April 2020 with selected participants. By late-October 2021, the trials included 19 companies, over 140 million wallets/users, and $9.7 billion worth of transactions.Singapore hasn’t banned crypto trading, but it’s being very stingy with its licenses. The country’s Payment Services Act (PSA) came into effect on January 28 and the Monetary Authority of Singapore (MAS) has since received over 480 applications for a license to offer crypto services.
While MAS reviewed the requests, 90 companies were allowed to continue operations under temporary exemptions.
Out of the 480, Binance Singapore’s application was among the 170 asking to provide digital payment token (DPT) services on the island. However, come September, Binance withdrew its application and has decided to shut down its crypto exchange services in the country altogether.
And, it’s not alone. As of mid-December, over 100 companies of the 170 that applied for such a license either withdrew or were turned down, according to Nikkei Asia.
The Ukrainian Parliament passed a law almost unanimously in September, to regulate cryptocurrency trade. A few more amendments have been requested by the President, and if passed by Parliament, the law will come into force in 2022.
Explaining the law, Oleksandr Bornyakov who is Ukraine's Deputy Minister for Digital Transformation said, “many Ukrainians use crypto, so we need to find a way to regulate the sector and make it prosper.”
Notably, this law does not allow for the likes of Bitcoin to be used as payment for daily goods. It simply moves cryptocurrency out of an unregulated area, laying down a framework for how crypto trade can be conducted and how banks can interact with it. It is claimed to enable trust in the system, with anti-money laundering measures and to protect customers against fraudulent activity.
The US passed a new $1.2 trillion bipartisan infrastructure law this year, which requires annual tax reporting by digital currency brokers starting in 2023. However, there’s currently a heated debate over how the definition of the term ‘broker’ will apply. If the scope is too broad, it would effectively place everyday at-home crypto traders on par with brokerages with complex tax audits.
Japan proposed rules in December, to regulate who is allowed to issue stablecoins in the country. The country’s Financial Services Agency (FSA) wants to restrict the scope to only banks and wire transfer services. However, the final decision is still pending.
Cryptocurrencies have been legal in the country since 2016 to protect users with laws that go so far as to make it a punishable offense to spread false rumours about a cryptocurrency.
Japan’s progressive crypto regulations also oversee custodians of crypto, and limit risk of derivatives like margin trading. The year 2022 is expected to bring in regulations to tighten existing money-laundering prevention measures, and a yen-based digital currency.India’s cryptocurrency regulation bill failed to be tabled in its legislature a second time in December. After being postponed, it is likely to be tabled alongside the money bill during the budget session in 2022.
The proposed law “seeks to prohibit all private cryptocurrencies”, and was expected to address exchange-related regulations. India’s Finance Minister Nirmala Sitharaman clarified in November that India won’t designate Bitcoin as a currency, which leaves the door open for India to regulate it as a crypto asset like Japan.
Remarkably, the Reserve Bank of India (RBI) with its considerable policy sway has blown hot and cold this year – its official circular in May looked like a nuanced positive sign to cryptocurrency investors, but an internal presentation in December stated an “unchanged stance”, in favour of a complete ban on cryptocurrencies.The UK’s financial regulator told lawmakers in early-December that investors who lose money on crypto should get no compensation from government schemes. Taking a stance on what the government can be responsible for, the Financial Conduct Authority (FCA) head Nikhil Rathi said earlier this month, “anything crypto-related should not be compensated, that consumers should be aware of it when they invest,” referring to notional losses on the crypto market when prices go down.
Crypto exchanges that operate in the UK need a license from the Financial Conduct Authority (FCA) as regulatory approval, and the FCA was being consulted in the course of discussing the best method to protect investors from probable crypto fraud.
The FCA had issued a notice to Binance’s UK arm in June, asking to stop the crypto exchange’s derivative financial services in the UK, as their license did not approve derivatives. In another indicator of the government’s intent to protect consumers, the UK’s Advertising Standards Authority (ASA) chose to ban seven cryptocurrency ads last week, calling them misleading.Russia’s chairman of the Financial Markets Commission said in December that he wanted regulations to make it easier to tax cryptocurrency transactions. Reported in local media, the chairman Anatoly Aksakov said he was in favour of regulating cryptocurrency mining to be legal, transparent and taxable; and to avoid banning crypto.
The Russian central bank is preparing an advisory report regarding cryptocurrency. In addition, a working group of specialists consisting of elected MPs from the Duma, bureaucrats from crucial financial agencies, and representatives from the cryptocurrency business are being set up, to formulate legislation for the sector. Russian President Vladimir Putin stated at the VTB Capital investment forum that investing in cryptocurrency is “very risky” at the moment.
The country has also seen an uptick in crypto mining activity after China announced its ban. Russia’s power regulator is now considering seeding out crypto miners from regular power users in order to reduce the added stress on its power grids. While households will still pay subsidised rates for electricity, crypto miners will have to pay the full price.
A European Union (EU) expert council in November 2021 moved its proposal forward, to regulate crypto-assets including stablecoins, in its 27 member states.
The union is currently discussing a Markets in Crypto-Assets (MiCA) framework for service providers and issuers in the crypto sector, for uniform rules throughout the continent. Rules are still under negotiation starting from defining what it will regulate, to distinguishing between asset risk.
The prospective entry of large companies into cryptocurrency, decentralised finance (DeFi) and Web3 — the next-generation of the internet — has galvanised the European Union (EU) to regulate cryptocurrency. The EU already has a “travel rule”, meant to make transactions traceable and track down money used for or from criminal activities.
In July, the European Central Bank (ECB) launched a ‘digital euro’ project to look into a CBDC, and has said the phase of investigating ‘what it might look like’ will take two years. The ECB president has stated that the digital euro would not look to replace cash.
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