Switzerland, Singapore and the EU have taken the early regulatory lead, but Japan and the UAE are coming on now. Even the U.S. may be awakening.
Analysis
When it comes to cryptocurrency/blockchain regulation, considerable attention has been focused, this past year, on the United States’ action (or inaction). But the U.S. is not the world, just one important player, and crypto, from its beginnings, has been a global enterprise.
Perhaps, then, it makes sense to step back and ask: What is going on with crypto regulation when viewed through a global lens?
For instance, how do geographic regions such as Europe, Asia and North America compare in terms of crypto legislation, rules and enforcement? Is there any single country or jurisdiction that could serve as an exemplar for regulation? How is the developing world dealing with all this variation? And finally, are there reasons to be hopeful about the way regulatory trends are now unfolding?
If one focuses solely on the negative — the tide of crypto-related collapses, bankruptcies and enforcement actions in the United States this past year — a skewed picture can emerge. Progress in places like Europe might be overlooked, like the European Union’s recent adoption of its Markets in Crypto-Assets (MiCA) regulatory framework.
“Through MiCA, the European Union has been a global model by offering the much needed regulatory clarity that crypto businesses of varying sizes and business models would need,” Caroline Malcolm, vice president of global Policy at Chainalysis, told Cointelegraph, adding:
Nor is Europe necessarily alone in pursuing a forward-looking path. “There is massive momentum on achieving regulatory clarity for digital assets across the world, whether that be in the U.S., Singapore, the UAE or others,” Malcolm said.
A fragmented world
Despite some promising trends, global crypto regulation — laws, rules, enforcement, taxation, etc. — remains a mixed bag.
“There’s a lot of fragmentation when it comes to regulation depending on the jurisdictions and geographical areas,” Bertrand Perez, CEO of the Web3 Foundation, told Cointelegraph in an interview earlier this week.
“In the U.S. we know, we know what’s happening or what is not happening over there,” continued Perez, who earlier served as chief operations officer at the Diem Association (formerly Libra, Facebook’s high-profile but ultimately failed stablecoin experiment).
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Europe’s MiCA regulations, by comparison, focus on stablecoins. Indeed, MiCA is the EU’s “answer to the Libra project,” Perez said.
Significantly, the Europeans recognize that one can’t have a single regulatory framework for everything crypto, he added. MiCA is step one, “but then they’ve been slicing the use cases.” There will eventually be another regulatory framework for nonfungible tokens and another for metaverse-related use cases.
The EU doesn’t hold a monopoly on progressive thinking either. Switzerland, which is not an EU member, was the first country to develop a clear crypto framework back in 2018.
The Swiss regulatory scheme separates tokens into three categories: security (a.k.a. “asset”) tokens, utility tokens and payment tokens, and also provides a number of licensing schemes dependent on the project’s structure.
In the U.S., by comparison, the Securities and Exchange Commission appears to have categorized all digital tokens — with the possible exception of Bitcoin — as security tokens. But in Switzerland, according to Perez:
The legal certainty that Switzerland has offered for several years now is the reason that so many crypto-related foundations and companies are based there and the reason so much Web3 innovation comes out of that country, he said. The Web3 Foundation, creator of the Polkadot protocol, is based in Zug, Switzerland.
Historically, Singapore followed Switzerland’s lead, and for a while, those two venues stood alone in terms of crypto rule-making clarity. “In 2019, when we announced Libra, there were those two choices, either Switzerland or Singapore, in terms of regulation,” Perez recalled. “The two countries were clearly leading the pack and having clear frameworks that were well defined.”
The evolving case of Japan
Today, there are more approaches. “In Asia as a geographical area, every country is having a different approach” to regulation, Perez continued.
However, Japan is one jurisdiction that is attracting more attention than the others. Japan was formerly the home of Mt. Gox, which was the subject of crypto’s first mega scandal. When that cryptocurrency exchange collapsed in 2014, it arguably made Japan crypto-wary. But if so, the island nation seems to be emerging from its isolation now — at least based on discussions Perez and others have held there recently.
“Japan is still a land of many innovations,” he reported. Indeed, at the WebX conference held in Tokyo in late July, Japanese Prime Minister Fumio Kishida announced, “Web3 is part of the new form of capitalism,” adding that it would be a vital element of Japan’s economic strategy, centered on growth, innovation, wealth distribution, digital transformation and the support of startups.
“The Prime Minister announced that basically he is welcoming Web3 to Japan, where a year ago or even a few months ago it wasn’t clear if they were supportive or not,” Perez told Cointelegraph. “Now it’s clear and the rules are going to be as business friendly as possible.”
Japan wanted to develop and implement clear and well-defined rules of the road for cryptocurrencies before it opened its gates again after Mt. Gox, Perez suggested, and they have those now. As he further noted:
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Elsewhere, China has been in the process of launching its digital yuan, becoming “the first country to have a central bank digital currency at scale,” according to Perez. Meanwhile, Dubai, the most populous city in the United Arab Emirates, is now “really pushing hard” in the crypto sphere “to attract not only capital but also skills from all around the world,” said Perez.
Asked to rank the largest Western countries in terms of regulatory crypto foresightedness, Perez put the European countries ahead of Japan, with the U.S. bringing up the rear. Within the EU, he would place his native France at the forefront, given that it is “the first European country to clearly implement the MiCA framework ahead of the law being enforced in the European Union.”
France has also done a good job at defining the rules of the road “in a way that is usable from a business perspective.” The U.K., no longer in the EU, is also “beginning to shift and see the value” in crypto and blockchain technology, he added.
Perez even detects “a different tone” among U.S. regulators and legislators; they now seem less likely to view the cryptoverse as a place inhabited chiefly by drug dealers and money launderers. He also observed that cryptocurrency reform is being spearheaded by legislators “on both sides of the aisles” within the most recent U.S. Congress.
What about low- and moderate-income countries — where do they stand with regard to crypto regulation?
“Most of those countries are basically waiting for the big players like the U.S., the European Union and Japan,” Perez said. They will watch to see which frameworks work best and can be adapted to their particular circumstances.
Which regulatory elements would he especially like to see duplicated globally? “If I had to recommend one framework, I would choose a combination of the Swiss token framework and parts of the EU’s stablecoin framework,” Perez answered.
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These would offer some flexibility and encourage innovation. Within the EU framework, there is even room now for a token to be reclassified over time. A token might begin its “life” as a security token, but later evolve into a utility token. As the Web3 Foundation’s chief legal officer, Daniel Schoenberger, explained to Cointelegraph in May:
When asked whether he viewed the global regulatory glass as half empty or half full, Perez noted that this past year was generally a difficult one for the crypto sector amid scandals and bankruptcies like FTX and Celsius.
However, “I think we’ve passed through the worst,” Perez said. Some harsh criticism was heaped upon the industry, but that in turn may have led to “a bit more transparency” as well as reinforcing the need to build projects that last. Perez continued:
