Do We Need More Crypto Regulations?

The European Parliament’s Committee on Economic and Monetary Affairs recently approved a draft of its comprehensive Markets in Crypto Assets, or MiCA, crypto regulation package. The new framework covers a wide range of cryptocurrency-related topics, such as the status of significant coins, how to trade bitcoin and stablecoins and the regulation of cryptocurrency mining and exchange platforms.

Crypto Regulation and what it does, pros and cons 

Cryptocurrencies have generated interest around the world since they were created in 2009. They are aware of their changes, values , and behavior of the market. They are not the only players interested in this type of currency. The States are looking to regulate cryptocurrencies.

Countries, Where the Cryptocurrency Is Regulated

Many countries have issued guidance on how cryptocurrencies should be taxed. In Sweden, Bitcoin and cryptocurrency are considered a capital investment, and the Swedish Tax Agency requires that cryptocurrency be declared as another asset to collect capital gains tax. 

Income from mining (i.e., verification of new blocks) of cryptocurrencies is customarily considered a hobby activity, as profit in practice is almost impossible to achieve. Any gain is therefore taxed as income from employment for natural persons. 

In exceptional cases, the profit is taxed as income from business activities. The activities are conducted regularly, professionally, and cost-effectively for an extended period and generate a certain amount annually. For legal entities in business activities, changes in value are customarily taxed as income from capital.

VAT does not have to be paid when money is exchanged for or from cryptocurrency. It was decided by the European Court of Justice in 2015 following a request for a preliminary ruling from the Swedish Tax Agency. Nor does the mining of cryptocurrency entail an obligation to pay VAT, regardless of whether it is a natural or legal person conducting the business.

Also, cryptocurrencies are regulated in the following countries:

• Uruguay
• Brazil
• Bolivia
• Mexico
• Paraguay
• Peru
• Ecuador, etc.

The Consequences For Cryptocurrency, If The Majority Of Countries Will Accept Crypto Regulations

Nowadays the increase in the use of cryptocurrencies and tokens for financial exchange is increasingly evident. And it is that in recent years the world has been preparing to adopt these digital assets more seriously.

In different countries, new legislation is being proposed to promote the prevention of money laundering. Because this is one of the direct consequences of the use of crypto assets resulting from the encryption of the data of those involved. Indeed, the regulation of cryptocurrencies is a necessary step to prevent money laundering and contribute to global economic growth.

Crypto technology is not just limited to Fintechs. Indeed, old and traditional financial services companies, such as Goldman Sachs and JPMorgan, as well as tech giants like Facebook have taken notice and are in the process of developing their own cryptocurrencies.

Currently, over 2500 cryptocurrencies worth over $252.5 trillion are trading in the market. The price of cryptocurrencies varies between approximately one millionth and thousands of US Dollars, with daily fluctuations.

Growing concerns about the role of cryptos in facilitating illicit financial flows such as money laundering, tax evasion, illegal arms sales, and terrorist financing have raised awareness of the need to implement regulations.

However, on the one hand, there are those who doubt the adequacy of regulations due to the fact that many aspects of cryptos are difficult to regulate. Indeed, governments cannot easily control the content of blockchains, which are abstract ledgers. Moreover, the crypto markets are international and do not depend on the endorsement of the countries’ financial institutions. This is also one of the reasons for their existence.

Insights for investors 

It is clear that regulation at the local level will, at first glance, clarify the situation regarding the classification of cryptos. Indeed, until now, there is no unanimity on their nature. Some tend to think of them as digital tokens and tradable assets, others think of them as currency. 

El Salvador passed a law aimed at regularizing Bitcoin and recognizing it as a legal and unlimited currency in any transaction (El Salvador is therefore the first to take this step).

Furthermore, the regulation will be particularly beneficial for investors as it could facilitate the creation of information infrastructures and certified financial advisers trained in digital assets and could reduce the risks of cybercrime and online fraud. Moreover, an unregulated system promotes illegal activities. 

Indeed, today’s exchange monitoring requires significant investments in technology to detect any suspicious transactions.

The Affection of the Whole Trading Market

At present, as mentioned at the outset, there is very little regulation regarding the handling and marketing of cryptocurrencies, which means that both private individuals and companies are uncertain about the rights and obligations that exist in the area. 

The IT lawyers believe that the regulation of cryptocurrency will be strengthened as the public places greater demands on alternative currencies. If you look at Europe, countries such as Malta have already come a long way in connection with their regulation of virtual financial assets.

When a new cryptocurrency is launched, it is common for the public to be offered to buy and invest in the currency. This is called an initial coin offering (ICO) and is a way to obtain financing from the public to be able to develop a business idea into a finished company, similar to crowdfunding. In recent years, especially around 2017, risks regarding investment in ICOs have been highlighted. 

In many countries around the world, the rapid increase in ICOs has resulted in the public losing money by investing in frivolous projects that the actors never intended to complete. Finansinspektionen has also warned of the procedure as ICOs are not covered by consumer protection, information requirements, or guarantee of the end product.