As an industry, crypto is only a teenager preparing to celebrate its 15th birthday this fall, which will mark the anniversary of Satoshi Nakamoto’s Bitcoin Whitepaper. Just as parents wouldn’t let their teens drive on roads without passing a driver’s test, professionals in the digital assets industry have regularly asked for clarity surrounding the legalities of blockchain-based currencies as we watch our baby grow up.
Unfortunately, this request has proven mighty.
Across the industry, U.S.-based crypto companies complain of feeling hamstrung by the collective inaction of lawmakers, who have yet to lay out clear guidelines despite multiple efforts at aligning on these fronts. That’s not to say there hasn’t been any progress — just that most is hot and cold.
In March 2022, the Biden administration issued an executive order asking federal regulators to assess the risks and benefits of crypto (a promising sign). However, this call to action has been interpreted as too vague to move the needle. The order calls for consumer protection and “technological advances that promote responsible development and use of digital assets,” which most professionals in Web3 agree with. The danger, according to many in the field, is not in the rhetoric, but rather in its interpretation. It’s unclear how well regulators understand blockchain technology in order to avoid miscategorizing crypto as unequivocally dangerous to consumers, let alone deciding what “consumer protection” and “responsible” might mean in the context of Web3.
There’s also a growing concern of fragmentation among lawmakers at the state and federal levels, which is already resulting in piecemeal policies and punative crackdowns that hinder the growth of Web3 businesses seeking a clear path to compliance at every level. To make it worse, warn some top-level execs, this drama cycle could bestow businesses in adversarial nations with a major competitive advantage.
Worldwide, governments and regulatory bodies have been grappling with how to effectively regulate cryptocurrencies and strike a balance between consumer protection and innovation. Here's a quick summary.
Prompted in part by the failings of centralized exchanges like FTX, countries worldwide are ramping up their efforts to establish comprehensive frameworks for crypto oversight. Last month, the European Union (EU) implemented a comprehensive framework known as the Markets in Crypto-Assets Regulation (MiCA), which nudges the 27 EU nations towards alignment on crypto law, though the measure doesn't cover decentralized finance (DeFi) or non-fungible tokens (NFTs).
Individually, nations like Canada, Brazil, Thailand, Japan and Germany have taken significant steps to regulate cryptocurrencies, addressing concerns related to anti-money laundering (AML) laws, know-your-customer (KYC) procedures and investor protection against fraud. In August 2022, the Canadian Office of the Superintendent of Financial Institutions (OSFI), a federal regulator, issued its first rules for crypto with a focus on making digital assets more easily taxable. More recently, in February 2023, Canada tightened up its requirements even further for exchanges and platforms by outlining reporting guidelines for holding crypto assets, banning certain forms of leverage and restricting the sale of stablecoins without permission.
This month, Norway’s central bank urged authorities to speed up regulation, while France’s national gambling authority has been known to crack down on in-game digital assets and NFTs. And in Asia, Hong Kong plans to regulate crypto retail trading in 2023, while Japan is implementing a so-called travel rule to better track the movement of digital money.
Aside from the hard lessons learned after FTX, another incentive is also motivating nations to outline better digital asset guidelines: the rising interest in a type of crypto known as central bank digital currencies (CBDCs).
The intergovernmental political forum known as G-7 has been hinting at tougher crypto rules thanks to more CBDC chatter. As the name describes, CBDCs are issued by central banks. Some point to CBDCs as a possible fraud solution and a more effective method of cross-border remittances for developing countries. Functionally speaking, CBDCs could feel similar to using a debit or credit card as a payment method, but the concept of a central bank-owned-and-operated blockchain brings with it ethical concerns over consumer privacy, cybersecurity and data surveillance.
Nonetheless, according to the International Monetary Fund, over 40 countries have expressed interest in CBDCs, and as many as 80 countries have been developing CBDC programs since 2021, according to the World Economic Forum.
The last major topic of discussion among regulators is that of stablecoins. More than a year later, we all recall the horrible feeling we experienced while watching Terra’s stablecoin, UST, de-peg from the dollar in an unprecedented crash and burn. Stablecoin legislation was reported to be one of the top priorities for the newly formed U.S. House of Representatives digital assets task force, and it makes sense, given many stablecoins are backed by regulated fiat (government) currencies. Industry professionals call stablecoin regulation the “low-hanging fruit” among legislators and hope deliberation on the matter can be relatively straightforward.
Last month, the House Financial Services Committee unveiled its first stablecoin bill draft. It proposes creating categories of stablecoin issuers, including both banks and non-banks, banning algorithmic stablecoins and studying CBDCs more extensively.
We definitely can’t track every new regulatory development, but here are some outlets who are doing the good work on this front:
The Defiant: Led by Founding BFF Camila Russo, this independent crypto outlet brings readers ongoing coverage of both nationwide and global crypto regulation, with a particularly close look at the Securities and Exchange Commission’s (SEC) ongoing lawsuits which will ultimately determine the fate of Web3.
CoinDesk: Follow the Policy desk for updates on all things regulation, including op-eds where industry insiders share how they really feel.
The White House: Needless to say, the federal government is moving slower than industry innovation, but the disruptive nature of Web3 requires that regulatory bodies revisit nearly every area of governance from the economy to climate and more. Search "crypto" on the White House website to read Washington's formal announcements on the matter.
Read More: This NFT Artist Knows The Secret To Staying Grounded In Crypto's Wild West
This is not financial advice. If you don't want to spend money investing in crypto or Web3 — you don’t have to. The intent of this article is to help others educate themselves and learn.
Megan DeMatteo is BFF's Editorial Partner.
