An update on cryptocurrency regulations
Cryptocurrencies, like it or not, are a modern day phenomena that's here to stay. While most of the existing cryptocurrencies will fade into the abyss, some new ones will rise, maybe even state backed. And of course, due to its unstoppable nature, some cryptocurrencies will remain in power, like Bitcoin and Ethereum, for example. Today, I'd like to share a recap of major regulatory actions that have happened over the last month.
Venezuela is reportedly in the works to issue a government-backed cryptocurrency due to economic hardships. The state's central bank is seriously considering running its own crypto in an effort to stabilize the economy.
They admit that this is a forced measure, in a way a measure of last resort that can help the country stop hyperinflation. The government is currently partnering with a startup called Onixcoin. The government is also considering providing subsidies for cryptocurrency mining businesses.
Currently, due to poor central banking policy in the past and due to American embargo the hyperinflation is forcing people to adopt much more stable and deflationary cryptocurrencies. Anecdotally, some local businesses even accept collectible rare Pepe meme cards as a payment, issued on the Counterparty blockchain.
On the other hand, the government is currently condemning cryptocurrency mining, accusing the miners of internet fraud and stealing electricity.
The other day, Vladimir Putin has made a statement regarding his views on the cryptocurrencies. He argued that in the wrong hands unregulated financial instruments can cause more harm than good, and as such he argues that regulation of cryptocurrencies is imminent. He also said that they don't want to kill the industry due to overregulation, and urged the government to come up with sensible regulations before 2018.
In other news, the russian parliament (Gos Duma) is working on a draft of a regulation that will impact the lives of people who deal with converting cryptocurrencies into fiat money. Within the next two weeks they plan to present a draft of the ICO law which, among other things, will regulate cryptocurrency <> fiat exchanges, says the committee head Anatoly Aksakoff.
According to Anatoly, it's essential to not only identify people who exchange cryptocurrency into fiat, but also to establish tracking of their further activities.
Conversion from cryptocurrencies into fiat money most be controlled - Russian Financial Monitoring agency should see it. When such a conversion occurs, there should be proper identification of the individuals as well as further monitoring of their activities. Anatoly Aksakoff
He also noted that ICO as a fundraising mechanism looks very simple and attractive, but he insists that fundraising of ICOs by Russian businesses must happen in the national fiat currency.
We need to work on the concept of ICOs that allow startups to raise fiat money under a simplified regulation. Essentially, we want to turn it into a crowdfunding platform via the ICO mechanism on our platforms. Furthermore, once we see that cryptocurrencies have real world value we can gradually launch them according to a well defined procedure. Anatoly Aksakoff
Earlier this year vide head of Russian Financial Monitoring Pavel Livadnyi stated that development of cryptocurrencies is posing a serious risk for financial operations to move from a regulated environment into an anonymous mode of operation.
It will be interesting to see how this plays out given that the russian laws do not define the term cryptocurrency as of yet.
Mexico plans to regulate the fintech industry along with cryptocurrencies.
Mexican regulators decided to follow the path of countries that have issued laws that aim to regulate Bitcoin and financial services industries.
Mexican cryptocurrency sector is growing at a fast pace and is aiming to regulate local cryptocurrency businesses. However, the country has recently been hit by devastating earthquakes and hurricanes, which will surely push back the timeline of this regulation.
The project, introduced by Sheky Espejo, is currently in the prototype stage. The law offers "measures for regulating companies dealing with cryptocurrencies and Bitcoin in particular. The measures are currently presented in a vague format, with the central bank being the ultimate judge in such operations".
Analysts predict that Mexico will become the major hub of fintech businesses in its region in the upcoming years. The country had less than 50 fintech companies operating in 2015, and this number has grown to 240 in 2017 as of yet.
The regulation is on target to go live within the next 6 months.
Ukraine is about to legalize cryptocurrencies.
The ukrainian parliament (Verkhovnaya Rada) has registered bill number 7183 which aims to legalize cryptocurrencies on the country's territory. The bill will legalize exchange, storage and usage of cryptocurrencies.
The bill also introduces a formal definition of cryptocurrencies:
A cryptocurrency is computer code that governs ownership rights of an exchangeable object, information about which is modified and stored on a blockchain system.
It's worth mentioning that, as of this bill, individuals who deal with cryptocurrencies in Ukraine must disclose their identity and cryptocurrency accounts to the government in order to tax these individuals. The bill also mentions regulations of cryptocurrency miners and exchanges.
Failure to comply with the regulation will result in a number of penalties, including criminal liability.
United Arab Emirates
The government of Abu Dhabi has decided upon the regulation strategy for cryptocurrencies and ICOs.
The financial regulators of Abu Dhabi emirate have published a document disclosing the government's position regarding cryptocurrencies and initial coin offerings (ICO). The former will be classified as a digital good, while the bulk of the letter will be classified as conditional investments.
The document has been presented by the governing body of Abu Dhabi's financial industry, FSRA, which is part of the emirate's department of global markets, or ADGM. It defines the future direction of cryptocurrency legislation as part of financial services and markets regulation (FSMR).
ADGM does not consider cryptocurrencies as a legal form of payment, however it does see their value, as they can be exchanged for other valuable material goods. Notably,
Digital goods have a lot in common with material goods, such as precious metals, oil, gas and agricultural goods.
Thusly, since the virtual currencies are classified as goods rather than financial instruments, the regulator highlights that cryptocurrency mining and transactions do not fall under the agency's jurisdiction. At the same time the companies that deal with cryptocurrency derivatives will be treated the same way as companies dealing with conditional investments by FSMR.
Speaking about ICOs, the regulator notices that investors transfer virtual currencies to the entrepreneurs via a distributed ledger technology in exchange for a digital token. ADGM will classify some of those tokens as a digital good, and some as a financial instrument.
Tokens that represent traditional regulated emission, such as stocks, loan obligations or shares in a collective fund, will be regulated by FSMR using existing legislation. These tokens will be classified as securities, and every token's fate will be decided on a case by case basis.
Representatives of FSRA have als mentioned that they are currently working with Japan's ministry of finance in order to establish sensible virtual currency regulations. It is possible that in the future cryptocurrencies in UAE will be regulated according the the japanese law.
It's worth mentioning that the neighboring emirate, Dubai, has recently issued a statement warning citizens about the risks of ICOs, and stated that they have no intention of regulating the industry any time soon.