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Regulations With A Bang: What Has Changed For Bitcoin And Cryptocurrencies In 2020

2020 was marked by notable progress in many world countries in the regulation of crypto. The COVID-19 pandemic has provided this to some extent. Amid a general decline in the economy, institutional investors are very interested in Bitcoin. Some jurisdictions have already prepared a legal framework for the crypto industry, while others are still in progress. But even bills can play a huge role. Let’s talk about what different countries have been doing for legalizing digital currencies in 2020.

Post-Soviet countries

Let’s start our analysis with the countries of the former USSR. Let’s take a look at how the authorities dealt with cryptocurrencies in the 5 most significant countries.

Russia

In the summer of 2020, State Duma deputies adopted the Digital Financial Assets Act. Shortly after that, the document was signed by President Vladimir Putin. The new law came into force on January 1, 2021. It explains cryptocurrencies, and it’s prohibited to use this asset to pay for goods and services.

As for the cryptocurrencies themselves, the Central Bank urges to adopt another law for them as soon as possible. But financial regulators are already beginning to turn the screws actively. So, the Ministry of Finance proposes prohibiting crypto’s receipt by miners and oblige to declare receipts in digital currencies for over 600 thousand rubles. Moreover, authorities introduce criminal liability for hiding undeclared assets.

Now let’s talk about work at the level of individual constituent entities of the Russian Federation. The declaration of crypto has now been approved only by the government of the Sverdlovsk region. Still, the requirement is enshrined in Vladimir Putin’s December decree.

The Central Bank also allows the launch of a national digital currency. However, the digital ruble will act exclusively as an additional form of money (as well as cash and money on bank cards).

Ukraine

In January this year, the Cabinet of Ministers of Ukraine approved a new strategy for growing the financial sector. And one of the priority vectors is the development of the blockchain.

At the moment, the authorities are studying the introduction of loyal terms for miners. Thus, it’s planned to reduce the cost of electricity for mining centers with a minimum capacity of 100 MW. As for the monitoring of crypto, The State Financial Monitoring Service deals with this issue. She defines digital coins as “intangible assets.”

AML mechanisms are now being developed, as well as the seizure of digital currencies obtained illegally.

But most of all, the Ukrainian crypto community is waiting for the adoption of the Virtual Assets Act. It will spell out the basic concepts of digital assets. But unlike Russia, the Ukrainian document doesn’t ban the use of cryptocurrencies. On December 2, the Verkhovna Rada passed the bill’s first reading by 230 votes of deputies.

Besides, Ukraine followed other countries and announced the creation of an electronic hryvnia. The Ministry of Digital Transformation signed several memorandums of cooperation (including with Stellar). The Ministry of Finance submitted a draft of the Payment Systems Act. It defines a national cryptocurrency (CBDC) concept and secures the National Bank of Ukraine’s right to issue it.

Belarus

Earlier, the Belarusian authorities were generally loyal to digital currencies. In the Decree On the Development of Digital Economy, President Lukashenko assigned the name “digital signs” to them. However, in 2020, the Investigative Committee proposed enshrining the mechanism for the withdrawal of digital coins in the legislation.

The National Bank also proposed to give the right to issue utility tokens and control transactions with them. The regulator should bring additional investments to the country both in Belarusian rubles and foreign currency.

Besides, there were actions on the part of state banks. In November 2020, Belarusbank announced the launch of a legal service for exchanging cryptocurrencies. It’ll be available to holders of Visa bank cards.

Kazakhstan

Kazakhstan as a whole has followed the path of Russia. The government recognized digital coins as a particular type of property and banned the issuance and transactions with BTC. But at the same time, it’s said about some “exceptions provided for by the Republic of Kazakhstan laws.”

However, there are concessions for miners. In September 2020, it was decided to invest over $700 mln in the mining industry. The government says mining farms are creating new jobs and solving the problem of excess electricity production. It was made against the capacity growth: now they make up 6% of the total bitcoin hash rate.

And, of course, the National Bank is seriously considering launching its own CBDC. At the same time, representatives of the state regulator promised to announce the results closer to autumn. Well, let’s see. 

Uzbekistan

The authorities of Uzbekistan also didn’t silently stand by. The National Agency for Project Management is preparing to launch a national mining pool. Also, on January 21, 2020, the licensed BTC exchange called Uznex was launched.

In May 2020, the government obliged the Uzbek crypto market participants to comply with the law on combating the legalization of proceeds from crime and the financing of terrorism. 

North America

Let’s continue our analysis. Now let’s look at the actions of the two largest North American states. 

USA

The United States stood out from most of the advanced economies. They have shown very little interest in crypto regulation. Moreover, the approach to this issue cannot be called consistent.

Each state has its legislation, as does the federal government. Thus, the Financial Crimes Enforcement Network doesn’t consider crypto coins as a means of payment. But at the same time, exchanges are considered full-fledged operators of financial services, and tokens are known as intangible assets. Hence, marketplaces are committed to complying with the Financial Action Task Force (FATF) and US bank secrecy laws. On the other hand, the IRS considers the crypto to be a full-fledged tangible property that must be subject to fees.

Besides, several other government regulators are striving to gain control over cryptocurrency exchanges. It’s especially true of the Securities and Exchange Commission and the Commodity Futures Trading Commission. They consider digital coins to be securities and commodities, respectively. 

Canada

There are also new rules for regulating the cryptocurrency sphere. From June 2020, local and foreign cryptocurrency platforms must register at the Financial Transactions and Reports Analysis Centre and follow its guidance.

Thus, such companies must submit reports on all transactions for over 10,000 CAD. It’s especially true of sites that work with fiat currencies.

As for the national digital currency, the Bank of Canada sees no good reason for this. Moreover, experts of the financial regulator see the creation of CBDC as a threat to financial stability. They advise paying more attention to the safe storage of crypto assets and the issue of using cold wallets. Hence, all states must act together in the creation of national digital currencies. 

Europe

Also, the European Union paid particular attention to cryptocurrencies and stablecoins. Thus, the European Commission declared that Europeans began to use more digital currencies and online payments during the coronavirus crisis. Hence, work on legislative norms went faster.

Since the beginning of 2020, a particular directive on AML has been in effect in the EU. Several countries and operators of crypto services have already accepted the stated conditions and are fully following them. Also, the European Commission has established new requirements regarding financial control and protection of investors’ rights. Therefore, smart contracts and new blockchain projects in the European Union will be tested in the so-called “regulatory sandbox.”

Besides, the EU authorities propose to regulate digital assets on an equal basis with traditional ones. However, the crypto community is concerned about these proposals. Thus, the International Association for Trusted Blockchain Applications fears the industry overload due to new regulatory demands.

Another hot topic is CBDC. The European Central Bank has done a lot of work in this regard. Experts studied the possibility of launching a “digital euro,” applied for trademark registration, and even conducted a series of new asset tests in France. At the end of spring 2020, the Bank of France announced the successful completion of the first testing stage. Therefore, in July or August, work will begin introducing the digital euro throughout the EU.

Now let’s look at how they dealt with regulating bitcoin and crypto in different European countries.

Austria

Local authorities have introduced a fine for cryptocurrency services operators that don’t comply with the fifth EU directive’s norms. It amounts 200 thousand euros. 

Germany

The government has recognized digital assets as a particular type of financial instrument. Therefore, the integration of the blockchain into the securities market is in progress. The goal is to increase their liquidity and improve their compliance with the law.

Also, the operators of cryptomats received individual requirements. Now they need to obtain a special permit to install these devices in public places. Now in Germany, there are a little more than fifty cryptomats.

Besides, banks can now sell crypto and hold client assets under the EU5AML.

However, from January 1, 2021, severe restrictions on crypto derivatives trading were introduced. So, the maximum loss threshold is 10,000 euros. 

Ireland 

Also, restrictions for cryptocurrency exchanges and NFT dealers are introduced by the Cabinet of Ministers of Ireland. The same EU AML Directive will regulate the industry.

Spain

The Spanish government also relies on this document. Now crypto exchanges, companies operating cryptocurrency wallets, and holders of seed phrases must undergo mandatory registration with the Bank of Spain.

Also, a new bill is being discussed in parliament, requiring holders of digital assets to declare virtual property and profits from it.

In terms of CBDCs, Spain is keeping up with the rest of the world. The creation of a national cryptocurrency was named one of the top priorities for the next five years.

France

In April 2020, the French financial markets regulator called cryptocurrencies “digital assets.” And in March of the same year, the Commercial Court of Nanterre equated BTC with fiat, calling it a convertible virtual currency.

Delegates of the government also said their word. So, in October 2020, the head of the Ministry of Economy and Finance, Bruno Le Maire, announced amendments to the law on separatism. It should tighten oversight of crypto, which is increasingly used in drug trafficking, money laundering, and the financing of criminal activities.

Also, cryptocurrency companies will soon be required to carry out mandatory verification of users when buying or selling crypto. And for sites that don’t support fiat, separate regulations will be introduced.

As for CBDC, the Bank of France announced starting to test the digital euro back in the spring of 2020. The regulator sold state bonds for a new virtual asset. This operation was successful, so the experts are preparing for the next stage of testing with buyers’ participation from other EU countries. Tests of the national digital currency will take place on the Tezos platform.

Estonia

This country has toughened its scrutiny of cryptocurrency startups. From July 2020, companies must provide a standard package of documents and permits and prove that they have full-time project employees in Estonia itself. At the same time, the terms for issuing licenses and fees also increased. Now applications will be considered for 120 days, and the state fee will be 3300 euros.

Over the entire 2020, the Republic of Estonia’s Financial Intelligence Bureau canceled licenses from more than 1000 companies. Currently, there are about 400 service providers legally operating in the country. 

United Kingdom

The British government pays most attention to the issue of advertising financial services. It also includes the promotion of crypto exchanges. The Treasury Department is proposing to oblige such projects to obtain approval for launching ads from the Office of Financial Conduct. Also, companies operating in cryptocurrency services must obtain a license in the same regulator. Due to the COVID-19 pandemic, the registration deadline was extended until the summer of 2021.

There are also trade restrictions. From October 1, 2020, it is prohibited to sell crypto derivatives and exchange-traded notes by a retail trader. The issue of regulation of stablecoins and the launch of CBDC is considered separately..

Gibraltar

This jurisdiction is considered one of the most loyal to crypto coins. But even here, new requirements were introduced in 2020. They include a mechanism to counter the manipulation of cryptocurrency rates and a solution for exchanges to collect information about users.

The Financial Action Task Force’s guidance on Money Laundering (FATF) regarding tokens’ issuance was also updated. They explain in detail the mechanism for issuing new assets and include a risk hedging algorithm. 

Switzerland

Let’s continue our talk about friendly countries. Switzerland, despite the existence of a legal framework for Bitcoin, requires senders to undergo KYC. It applies to transactions over $ 1,000.

Also, new standards were introduced for storing and managing coins. They show how token transactions differ from holding traditional assets and set guidelines for digital asset holders. A complete legal framework for the crypto industry will be ready by August 2021.

Switzerland is also working to create a digital franc. The authorities announced testing of a new asset with the support of the Bank for International Settlements.

Asia

It’s time to look to the East. This is how things stand with the regulation of the cryptocurrency industry in most major Asian countries.

India

In the spring of 2020, the country’s Supreme Court, by its decision, canceled the directive of the Central Bank of India, which banned banking institutions from conducting operations with digital currencies. But, banks resumed cooperation with BTC exchanges only in December 2020, when the coin rose in value.

There is no clear position of the Indian government regarding the regulation of digital currencies. This is due to several inflows that happened in 2019. In the summer of that year, a complete ban on crypto was announced, and in the fall, states declared only the restriction of crypto trade. These statements have never been confirmed. 

China

2020 has been a landmark year for China:

  1. Beijing Arbitration Commission decided that Bitcoin can be used as a digital product.
  2. A special commission was created to develop the state blockchain standard. Besides, a bill on the inheritance of property on the Internet (including crypto) was submitted to the Chinese parliament.
  3. The blockchain received an official definition.

But the most important news is the legalization of the national digital currency. Simultaneously, the People’s Bank of China has banned pegging other tokens to the digital yuan. In October 2020, testing of a new asset began. Local authorities held a lottery among residents of several large cities. The lucky ones received envelopes with QR codes, by which they could get new coins. 

Malaysia

The Malaysian government has allowed startups to distribute digital tokens through venture capital firms and financial organizations. For that, they don’t need to sell shares in the business or provide debt bonds.

Both retail and institutional investors can join such activities. However, the maximum threshold for attracted investments through the initial coin offer has been $24.5 mln.

Besides, creators of platforms for IEOs (Initial Exchange Offers) must obtain an SEC license. Also, such sites undertake to check the issuers of tokens for better security. 

Singapore

This city-state also announced stricter requirements for crypto business. From January 1, 2020, exchanges and other projects must register and apply for a financial services operator license.

At the same time, miners and holders of coins obtained after hard forks or airdrops now have more freedom. Their assets won’t be subject to income tax.

Thailand

The kingdom’s government made a valuable decision. It allowed local financial companies to include digital currencies in their asset valuation. Hence, operators of crypto exchanges will free up as much money as possible. The same goes for trading platforms that support security tokens. 

Japan

The Japanese parliament adopted amendments to two important laws at once. We talk about the Financial Settlements Act and Financial Instruments and Exchanges Act. According to these documents, all virtual currencies are called “crypto-assets.” Exchanges also can manage their liquidity and user funds through intermediaries. For the latter case, it’s suggested to choose “reliable methods” of storing coins (for example, cold wallets). At the same time, tokens of game projects cannot be used in trading.

The Japan Financial Services Agency also demanded to remove functions that guarantee anonymity from blockchain-based games. As for the launch of the digital yen, it is scheduled for the near future.

Africa

And finally, let’s examine African countries’ actions to create a legal framework for cryptocurrencies. 

South Africa

In April 2020, the Intergovernmental Fintech Working Group (IFWG) proposed strengthening the crypto industry’s oversight. This could strip digital coins of legal tender status and bring them under absolute control. Due to new rules, tokens can be used only for internal purposes.

A bit later, the South African Reserve Bank proposed to equate digital coins with full-fledged financial products. For this reason, cryptocurrency service providers undertake to register and obtain licenses.

Zimbabwe

There’s a lack of a legal framework regulating digital currencies and BTC turnover in this country. That’s why any digital currencies or bitcoin turnover are banned in this country. The Reserve Bank of Zimbabwe recently proposed to create the basic legal framework for crypto. It also started developing a unified standard for the FinTech industry. It will allow a correct evaluation of digital currency service operators’ activities in Zimbabwe. 

Nigeria

The local Securities and Exchange Commission has equated cryptocurrencies to stocks and bonds. Therefore, at the moment, the relevant bills are being prepared. 

Conclusion

Now let’s summarize. The end of 2020 showed that digital coins remain in limbo. At the same time, a full-fledged legislative framework is not yet ready. Moreover, CBDC’s are undergoing research or testing in most of the countries. The total market cap of cryptocurrencies is gradually approaching $2 trillion. That’s why the world states are striving to introduce legal regulations to control the industry as soon as possible. However, there are no joining forces to create a single standard, so the community’s attitude towards crypto is only getting worse.

The blockchain is quite complex and multifaceted, so there are very few worthwhile projects in this area. But very soon, a distributed ledger will make financial relations completely transparent. However, all innovations will become popular only if highly targeted tokens develop. They will become the tool that will help the economy move to a new stage of evolution. 

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