Regulation is a bit of a scary word in the world of crypto right now,
but is all regulation actually bad for crypto?
And how are the biggest.
Economies like America China and the EU regulating crypto?
On this week's episode of Coin MarketCap, we're taking A deep
dive Into what crypto regulation is, how it works.
And what it means for all you crypto HODLERs out there.
My name is Jett Gunther.
And here at CoinMarketCap, we are on.
A mission to make crypto accessible all around the world.
That's why we love making.
Videos for you that are packed with information.
Easy to understand and simple to share with your friends and family.
So if you want.
Something more than just hype and to actually learn about crypto,
make sure to hit the subscribe button right now.
And turn on notifications to not miss out on new videos.
And let's learn together.
Cryptocurrencies have gone from being a speculative
investment to a fundamental part of a balanced investment portfolio.
Today, 16% of Americans invest in, trade or use crypto, according to Pew Research.
So it's hardly surprising that governments around the world
are pondering how to best regulate the growing crypto space.
As you've no doubt seen by now,
individual countries have taken
varying approaches to regulating crypto with unpredictable
consequences.
The UK's
regulators, for example, allow British citizens
to buy and hold as much crypto as they want.
But have cracked down on
advertisements for cryptocurrencies and platforms.
China, on the other hand, has criminalized
Crypto currency transactions and crypto mining across the country.
To help you navigate regulations, heading towards cryptocurrencies
we put together this video.
Where you'll learn about what we mean by crypto regulation.
Which
Methods officials are using to regulate crypto,
and Whether regulation is necessarily bad for crypto.
Make sure to check
the timestamps below to better navigate the video.
What do we mean by regulation?
So we hear the term
regulation used a lot in the press, but what exactly is regulation?
Well, in short, regulation is an official rule
which is applied and enforced by a Department
Of Government called a Regulator.
Regulators enforce all kinds of regulation for every type of
Business, including
Environmental pollution rules,
rules against using children as labor,
and of course, rules about how we can use cryptocurrencies.
For the most part, regulators exist to
protect us from shady illegal or harmful business practices.
And while some arms of the media love to denounce regulators
for unnecessarily interfering
in the free market, for the most part, they're creating and carrying out useful
and necessary rules.
Rules which prevent monopolies from taking
over and charging sky high prices for basic necessities.
Or stopping unscrupulous companies from pouring
toxic waste into our rivers.
Now, what about crypto?
Is regulation bad for crypto?
Regulation can be bad news for crypto.
For instance, regulators banning exchanges or limiting the energy
that miners can use will limit the number of people
who can access and benefit from digital currencies.
But regulation can also actually help crypto.
Some regulation will give crypto more
Legitimacy, which could lead to
institutional investors being more willing to finance crypto
ventures, which would help that crypto industry grow.
In fact, a number of crypto figureheads
are actively asking for a federal regulatory framework for
cryptocurrencies, including Coinbase CEO Brian Armstrong.
So now that we know what regulations are and that not all regulations means Bitcoin
is going to zero, let's take a look at the options regulators have
in respect to cryptocurrencies.
What options do to the regulators have?
As we said earlier, regulating
cryptocurrencies is problematic for a number of reasons.
Cryptocurrencies and platforms are built on
new technology
that regulators need to get their heads around before they can
create a regulatory framework.
But thanks to ever increasing
investment and innovation in Crypto, there's
tons of new technologies and tools coming out every week
further
complicating an already difficult job for the regulators.
We must also account
for the fact that Westerners have invested considerable sums
of money into crypto. And so
any regulation that would damage
Crypto, would.
also damage their own citizens.
If regulators in the EU
and the US decided to ban all cryptocurrency overnight,
they would be pulling the rug out
from under 300
million people or more, many of
whom live in their own backyards.
And after all, democratically elected governments are accountable
to their voters.
And if those
voters happen to be crypto
hardliners who don't want crypto to be strongly regulated,
the government has little choice but to approach crypto regulation
with a light touch or risk facing a furious backlash.
But still regulators have a myriad of tools to
regulate crypto,
but most have so far chosen one or two of the following strategies.
Number one, introduce
or increase taxes on crypto.
Today, most tax departments charge something like 10% or
20% capital gains tax on
any profits made from trading crypto.
However, not all regulators chose to do so.
Those regulators that haven't
announced crypto taxes, could do so. And those that do charge taxes
could increase the rates.
But then again, regulators
might also reclassify crypto as a new type of asset
which could also change how much tax
we pay on profits from selling, say, Bitcoin or Ethirium.
Number 2 - Regulate Crypto Advertising.
Regulators could also moderate how crypto firms can advertise
their products and services to the general public.
For instance, both the UK Financial Conduct Authority
and the Spanish government have implemented rules to stop exchanges
and platforms for making certain kinds of claims about their services
and from advertising in certain areas.
Number 3 - Banned Crypto Related Products.
Another way to regulate crypto is to ban
the sale of all crypto derivatives,
like options and futures contracts, which the UK's
Financial Conduct Authority did in January of 2021.
According to the Financial Times, the CFA's derivatives ban is both overly
cautious and hurting Britain's position as a global financial center.
The paper also claims the ban hasn't achieved much
because Brits can simply buy derivatives abroad to get around the regulation.
Number four -
Deter The public From Buying Crypto.
Another approach which a surprising number of regulators are taking,
is to, quote:
make the public aware of the risks of cripto,
which at first glance seems like an appropriate
and reasonable first step towards regulation.
However, research published
by the Financial Conduct Authority shows
such warnings are neither useful
nor effective.
The CFA's research
shows that the majority of crypto handlers are
knowledgeable about what crypto is and how it works, and are,
for the most part, aware of the risks involved in trading crypto.
And number 5 - A Total Ban On Crypto.
Then again, regulators could always ban crypto outright in approach
taken by China, Egypt, Iraq, Qatar and a number of other countries already.
However, it is unlikely
any Western country
will ban crypto outright, if only because so many of their citizens
already own crypto. And a ferocious uproar
would likely follow a full blown crypto ban.
The regulations we've talked about so far
control crypto directly.
But Governments
and regulators have another indirect way
to regulate crypto,
which is by creating a government controlled digital currency
with all of crypto technological prowess,
but under centralized government control.
We're talking, of course, about central bank
digital currencies or CBDC's. Now central bank
digital currencies or CBD CS are
digital currencies that are somewhat
similar to cryptocurrencies, except they're not transparent
and are controlled by a centralized regulator or government.
CBCs are currently
being trialed
and tested all.
Over the world
today and a few major
economies could replace cash
with CBDC's within the next decade.
In practice, spending a digital dollar would work
just like spending money on your credit card.
But unlike spending cash or the money on your credit card,
digital dollars could be programable.
So every purchase you make is very trackable.
So if your central bank
actually did get rid of all cash and implemented a CBDC overnight,
it could keep tabs on your spending habits or stop you from buying products
it doesn't approve of.
Such as political newspapers that support an opposing
party or
publications that highlight all of a government's corruption
and it's lies told by its representatives.
CBDC have long been a major concern for privacy advocates
who have readily
pointed out that citizens being compelled to provide ID to the government
for every transaction they make,
only for the government to
build a massive LifeLock file on their spending habits, is not a wise move.
Should a Western country go ahead and release a CBC,
the government could then claim its citizens are
no longer in need
of a decentralized cryptocurrency.
So now that we've looked at some of the ways crypto could be regulated,
let's now have a look at some of the largest economies
that are regulating crypto right now.
So far, Western countries have had a generally positive response
to crypto, and North Macedonia is the only European country
to have banned spending, trading, or investing in crypto.
Eastern countries, on the other hand, maintain a hot and cold relationship
with crypto.
India, China and Russia have all flip flopped
more than once on whether to ban crypto entirely.
So without further ado let's
take a more in-depth look
at what's going on in the US, China and the EU.
Number 1 - the USA - owning, selling,
buying and mining crypto is legal across the United States,
and an estimated 27 million Americans own cryptocurrency today.
However, the United States
has until incredibly recently
taken a scattershot approach to crypto regulation.
Virtually every finance related regulator
issues press releases
and makes announcements about how crypto
should be regulated.
Which has led to confusion and uncertainty for American traders and hodlers.
The securities and Exchange Commission views crypto as a security,
while the Commodity
Futures Trading Commission
claims Bitcoin is a commodity.
Even the IRS classes cryptocurrencies as property
for federal Income tax purposes.
So as of yet, the United States does not have
a clear regulatory framework for Crypto.
But despite all the confusion,
America saw some regulatory progress
in 2021.
Most notably President Joe Biden's reappointment of Jerome Powell
as the Chairman of the Federal Reserve.
Powell is thought to be in cryptos corner, as he has said on record, that
he does not see cryptocurrencies as a, quote - financial stability concern
and that he has, quote - no intention of banning crypto.
However, he has on other occasions said
that stable coins need some form of regulation soon.
Even so, Powell's reappointment has hailed as a sign of incoming
crypto positive regulation.
And while plenty of hollers
consider Powell's reappointment to be
crypto salvation, we saw little in the way of regulation until just
very recently, when
those praying for a coordinated approach to crypto regulation,
finally had their wish
granted by President Biden.
The US President issued an executive order informing the US Government strategy
for crypto regulation, which should ensure
that digital assets responsibly developed across the United States.
The executive order also gives American financial
regulators the power to carry out studies and surveys
to better understand
and comprehensively regulate the crypto space.
In response to the order, Brett Harrison
the president of Crypto
Derivatives platform FTX
said that, quote - Some amount of regulation
is important to allow institutions to come in and feel confident
in being able to put their money into this emerging space like cryptocurrency.
So while we can't say for sure
what regulation the US will have in place ten years from now,
but at the moment, at least American hodler
can sleep a little easier knowing that
positive regulation is on the way.
Number 2 - China.
China might have the most complicated relationship
with crypto of any country on this list. in the past.
In the past, 9 years or so,
China has frequently
lashed out against crypto.
But each time the markets bounced back and the rules eventually softened.
In the very early days,
up until the middle of 2013, the Chinese government
did not have all that much to say about Bitcoin, and Chinese peaple
were free to use it, although few did.
But in late 2013, the People's Bank of China
abruptly took a hostile stance against crypto.
The bank issued a notice prohibiting banks from handling transactions
related to Bitcoin, immediately explaining that Bitcoin was not backed
by any country or authority was not safe or trustworthy.
Following on from the notice, the Bank of China set up a research group to
Study how it could set up
its own central bank digital currency or CBDC.
While banks were prohibited
from handling Bitcoin at the time,
Chinese citizens were allowed
to mine Bitcoin, which they certainly did.
In fact, at Cambridge University estimated
that at their peak, Chinese Bitcoin miners were carrying out
about 75% of all Bitcoin mining activity.
A few years down the line in 2017, the Chinese government
banned initial coin offerings or ICOs much to the dismay of crypto hodlers
at the time, as ICOs were bringing tons of cash into crypto at the time.
And in June of 2019 the Chinese government announced that trading cryptocurrency
was officially banned in China and the government would block access
to all crypto exchanges and coin offering websites.
In a further step towards an outright crypto ban
China's National Development and Reform Commission labeled
Bitcoin Mining a, quote - undesirable industry due to the energy
required later on in 2019.
And in early 2020 the Chinese government clamped down on crypto even further
by blocking access to over a hundred websites
that were either crypto exchanges or offered crypto related services.
Later, in 2020, the Bank of China announced that it had finished
the early stage development of its CBDC's called the Digital Yuan,
and the first public pilot would launch in Shenzhen.
While China CBDC has so far proved successful,
its ban on running exchanges and trading crypto had little effect,
as many Chinese citizens carried on mining and trading Bitcoin anyway.
Which is why in May of 2021, the Chinese Central Bank decided
to kill crypto in China once and for all, announcing
that all transactions of cryptocurrencies would be henceforth illegal in China.
The ruling also disallowed Chinese nationals from
working for foreign exchanges.
Unfortunately for
Chinese Bitcoin miners, the central bank's ruling
really was the final nail in their mining rig's coffin.
And most of them closed
their doors for good or moved
to other countries to continue their mining operations.
Given its advancements towards implementing its CBDC,
we feel that China is unlikely to allow its citizens to
freely trade Cryptocurrencies again any time soon.