Cryptocurrency regulation around the world & how India compares
4 min read . Updated: 08 Nov 2021, 01:07 PM IST
PremiumLet’s look at cryptocurrency regulations in major economies and groupings and see how India really compares.
Recently, every time Parliament has been in session, the cryptocurrency community in India has been abuzz with tension. Will the law on cryptocurrencies be finally passed? Will our fears come to pass and will cryptocurrencies be banned in India?
While there’s no way to tell when the crypto law in India will be passed in Parliament and what form the regulation will take, what we can do is look at how other countries treat cryptos and see how India has compared so far.
Different countries and groupings have their own ways of regulating cryptocurrencies, but it is safe to say that India has so far been among the most closed to cryptocurrencies. Going by media reports on what the Government is likely to propose in the crypto legislation, it looks like this status is not likely to change substantially. But let’s look at cryptocurrency regulations in major economies and groupings and see how India really compares:
United Kingdom
As with most countries as of now, the United Kingdom does not have a comprehensive legislation on cryptocurrency regulation. Under the current system, the Financial Conduct Authority is the body that grants licenses to authorised cryptocurrency-related businesses, which also include crypto-exchanges. These businesses, like all others seeking a license from the FCA, have to comply with a stringent set of rules. These rules are particularly stringent for those companies dealing in crypto futures and options trading.
As far as taxation is concerned, the UK taxes gains from cryptocurrency trading as it would gain from any other currency trading. Businesses that are involved in trading currencies, or the cryptocurrency exchanges themselves, fall under corporate tax rules.
This is not to say that the FCA is blind to the potential risks of cryptocurrencies. It has, much like the RBI, periodically issued warnings to investors in the UK that they should invest with caution.
United States
Like India, the United States has a dual legislative system where the Central Government and the State Governments each have powers to legislate. Regulations regarding cryptocurrencies vary across States in the US, but overall the country has been in favour of allowing all cryptocurrency activities.
New York, in particular, is a stand-out example of a favourable legislative environment. Back in 2016, New York launched a framework for licensing cryptocurrency businesses and exchanges, called BitLicense. Under the system, companies looking to transmit, hold, buy or sell cryptocurrencies need to obtain a license from the New York State Department of Financial Services.
Another State in the US with a favourable regulatory environment for cryptocurrencies is Wyoming, which, in 2018, exempted the developers or sellers of cryptocurrencies from securities laws as long as they met certain conditions.
European Union
Legislation in the European Union is a complicated matter, with some topic being dealt with by the member nations and others being dealt with at the consolidated Union level. Cryptocurrencies have so far been regulated by each country in the EU, with most opting for a soft-touch regulatory framework. Recently, however, the EU has looked into setting up a consolidated framework on cryptocurrencies. In September 2020, the European Commission released a draft legislation titled Markets in Crypto-Assets Regulation (MiCA).
According to the draft, cryptocurrencies will be treated as regulated financial instruments. Similar to other such financial instruments, any firm holding, trading, offering brokerage services, or providing investment advice regarding cryptocurrencies will need prior approval from the regulators.
What is particularly interesting about the draft is that it takes cognisance of the different types of crypto-tokens, such as crypto-assets, utility tokens, asset-referenced token, and e-money token and proposes different rules for each.
China
China’s dealings with cryptocurrencies has been a roller-coaster ride. Where at first it was welcoming of all crypto-related activities, especially mining, it has now become one of the most restricted crypto-markets in the world. As recently as September 2019, China accounted for about 75% of all crypto-mining in the world. However, in June 2021, it banned the mining of cryptocurrencies, leading to about a 40% fall in global mining operations, according to some reports.
Earlier, China had banned initial coin offerings (ICOs) in 2017, following which it also ordered crypto-exchanges to close. However, the legislators main grouse was with ICOs and so it has not made it illegal to hold or trade in cryptocurrencies. Like India, the Chinese government has also shown considerable enthusiasm regarding blockchain technology and has encouraged the growth of blockchain-related start-ups.
China is also among the furthest along in terms of bringing out an official fiat cryptocurrency, in the form of a digital Yuan. It has already started real-world trials of the cryptocurrency, which will be centrally regulated, but which is supposed to operate differently from the normal fiat currency.
Conclusion
As discussed in the previous article, India has taken a very conservative approach towards cryptocurrencies, with the RBI trying to ban them. Even though the ban was overturned, the stated attitude of the central bank has not changed. As for the Indian government, it is following the dual path of looking to strictly control or even ban cryptocurrencies while also encouraging the use of blockchain technologies.
