Global Financial Regulators Turn Focus to Crypto
VYSYN Ventures Weekly Insight #84: Governments worldwide move to regulate mining and trading
As the cryptocurrency industry continues to progress towards mainstream adoption, governments across the globe are increasing regulatory controls. The White House has stepped up to regulate cryptocurrencies, Vladimir Putin has called on Russia’s regulators to come to a compromise amid conflicting opinions, and India has dropped any imminent plans of banning crypto activities in the country.
Financial regulators are gradually warming up to the cryptocurrency industry more than ever before. Explosive market growth in recent years has made it impossible to deny their influence on global economies. Cryptocurrencies have evolved from a speculative technology to an asset class which plays a huge role in the global, macro markets. However, as influence grows, regulation naturally follows.
This week’s edition of the VYSYN Release will highlight some key steps that the American, Russian, and Indian governments have taken to regulate crypto in their countries. We will also analyze how these moves will affect the broader cryptocurrency industry and how it impacts the end users and investors.
Biden Administration to treat crypto as a matter of national security
The White House is planning to set out a cohesive regulatory framework aimed at overseeing the cryptocurrency industry. According to confidential sources familiar with the matter, the Biden Administration is poised to issue an executive order that will task federal regulators with analyzing virtual assets and preparing a comprehensive regulatory framework for them.
The administration reportedly considers cryptocurrencies to have “economic implications for national security”. Therefore, the proposed regulation will involve the Treasury Department, State Department, National Economic Council, White House National Security Council, and Council of Economic Advisers.
Meanwhile, a new provision in the America COMPETES Act might give the Treasury secretary unchecked discretion to block cryptocurrency transactions. While the bill seeks to spur economic competitiveness with China, the new provision might allow the Treasury secretary to also ban any form of crypto activity “without any process, rulemaking, or limitation on the duration of the prohibition.”
Several crypto proponents have spoken out against the new bill, including U.S. Senator Cynthia Lummis. Regarding the America COMPETES Act, she said, “This is a direct attack on the digital asset industry… I will not stand by and let the heavy hand of the government pick winners and losers.” Lawmakers are currently trying to block the new provision in the bill from being passed as it would have adverse effects on the crypto industry.
IMF urges El Salvador to remove Bitcoin as legal tender
The International Monetary Fund (IMF) has urged the government of the Central American nation of El Salvador to narrow the scope of its Bitcoin Law and remove Bitcoin as legal tender. The international body remarked that cryptocurrencies pose serious risks to the country’s financial stability.
El Salvador had made headlines last year when it decided to adopt Bitcoin as a parallel legal tender to the US Dollar, making it the first country in the world to take such a bold step. Since then, El Salvador has engaged in several Bitcoin-forward activities, including mining Bitcoin with a volcano, purchasing the digital asset, using its profits to build a pet hospital, schools, and furthering its plans of building a Bitcoin-powered city.
However, the decision to adopt Bitcoin as legal tender by the Salvadoran government has been faced with backlash from several market analysts and a significant portion of the country’s population. In one instance, a top professor of Applied Economics at the John Hopkins University, Steve Hanke, opined that the move was a “stupid” one.
According to the IMF, adopting Bitcoin as a legal tender “entails large risks for financial and market integrity, financial stability, and consumer protection. It also can create contingent liabilities.” The body emphasized that removing Bitcoin as legal tender will help El Salvador mitigate the risks cryptocurrencies pose for its national economy.
The IMF acknowledged that digital payment methods, like the government-approved Chivo wallet, have encouraged financial inclusion. However, it noted that the risks posed by such digital transactions can not be overlooked. The IMF also voiced its concerns over the risks associated with the Bitcoin-backed bonds that the country plans to issue later this year as part of its Bitcoin City project.
El Salvador, however, has shown no sign of going back on its Bitcoin adoption decision, which President Nayib Bukele had described as a “forward-thinking” decision. The country’s Treasury Minister, Alejandro Zelaya asserted that the decision to adopt Bitcoin as legal tender is an issue of sovereignty and the IMF would not coerce the country to do otherwise.
President Putin calls on Russian regulators to end conflict over crypto regulation
Over the past week, Russia witnessed a back and forth between its central bank and the Finance Ministry over the regulation of the cryptocurrency market in the country. The Bank of Russia initially proposed an outright ban on the asset class, citing several regulatory issues. The financial regulator also pointed out that the use of cryptocurrencies could undermine regulators’ jobs of protecting the country’s existing monetary policies.
However, the proposal to ban crypto in Russia was immediately opposed by the country’s Finance Ministry. According to the ministry’s department director, Ivan Chebeskov, regulating cryptocurrencies protects citizens’ rights. The Finance Ministry explained that the dangers of investing in crypto can be efficiently controlled by regulating the country’s crypto market, not banning it.
Amid the conflicting opinions, President Putin weighed in on the matter, urging both parties to reach a regulatory compromise. However, the President appears to be leaning towards regulating crypto, as he highlighted the country’s competitive advantage in terms of crypto mining. Russia is currently ranked third in terms of Bitcoin mining input and Putin suggested that surplus electricity be used for cryptocurrency mining.
A recent estimate conducted by the government revealed that Russians currently hold approximately $214 billion worth of crypto. With the government’s increasing interest in the space, Russia could soon regulate crypto trading and mining.
India legalizes crypto and levies 30% income tax on crypto traders
It has been almost two years since the Supreme Court of India overturned the ban on cryptocurrencies imposed by the Reserve Bank of India (RBI). Since then, the country’s crypto market has been striving to gain the acceptance of financial regulators and pave the way for a clear regulatory framework to be established.
While India’s financial regulators have drafted several bills seeking to ban crypto once again, none of those bills have been passed. However, the Indian government is moving to regulate the cryptocurrency market, assuaging earlier attempts to impose a blanket ban on the asset class.
The country’s Finance Minister, Nirmala Sitaraman, revealed during her 2022–2023 budget speech that the government plans to levy a 30% tax on profits realized from crypto trading. Notably, during her speech Sitaraman did not mention a bill to ban crypto, suggesting the government’s acceptance to regulate the crypto space. However, Sitaraman did mention that the RBI is speeding up plans to launch a central bank digital currency (CBDC) soon to boost the country’s economic growth.
Increasing Regulatory Clarity in 2022
While several global financial regulators are moving to provide regulatory clarity for the cryptocurrency industry, China continues to maintain its rigid stance on crypto activities. The country’s crackdown on every cryptocurrency activity, including trading and mining, has forced several crypto businesses to relocate to other favorable markets. China, which had been home to more than half of the world’s crypto mining population, incited the “Great Mining Exodus” that had caused cryptocurrency prices to plummet in May 2021 as mining firms shut down operations.
However, as the crypto space continues to evolve, regulators see ample reason to provide clear policies for their operations. Global financial regulators are quickly realizing the vast opportunities that cryptocurrencies present and are moving to fully harness them. They are beginning to acknowledge that providing regulatory clarity for the crypto space will help protect citizens and boost economic growth. Regulations will improve investor protection, mitigate money laundering and tax evasion risks, and impact the wider economy.
While there are concerns that allowing governments to regulate crypto would go against the ethos of decentralization, it remains an indisputable fact that crypto regulation would attract more institutional investors and mainstream users. Despite the explosive growth of the crypto industry in recent times, some investors are still skeptical of entering the space since there are no clear policies. Therefore, as the governments’ growing interest in regulating cryptocurrency activities expands on a global scale, countries with a stringent stance on crypto activities, including China, might also soften their stance. It remains to be seen how events play themselves out.
About VYSYN Ventures
VYSYN Ventures is a longstanding venture capital company that specializes in funding and supporting disruptive startups in the blockchain and cryptocurrency industry. We have provided early-stage support to several projects that have grown USD market capitalizations of hundreds of millions and even billions. Our incubation program focuses on providing capital allocation, versatile marketing support, and tech assistance.