Crypto is currently the wild west of speculative investing, and the war in Ukraine is brining cryptocurrencies to the forefront of mainstream conversations. Nearly $100 million in individual crypto donations have been made to the Ukrainian defense effort alone, while some are concerned crypto will be used to get around Russian sanctions.

This attention on crypto is further forcing regulators around the world to take stances to ensure the effectiveness of their sanctions, protect their economies, and debate what the future of money will look like. Worldwide, governments are pushing forward guidance and regulations on crypto.

UNITED STATES

The March 9, 2022 price rally came after President Biden’s executive order on crypto leaked on the treasury website. U.S. Secretary of the Treasury Janet L. Yellen stated the following about President Biden’s order:

President Biden’s historic executive order calls for a coordinated and comprehensive approach to digital asset policy. This approach will support responsible innovation that could result in substantial benefits for the nation, consumers and businesses. It will also address risks related to illicit finance, protecting customers and investors, and preventing threats to the broader system and broader economy

The signed executive order mentioned a proposed digital US Dollar which was the subject of a recently released Federal Reserve report. According to the report, the digital US dollar is currently beyond the scope of the Federal Reserve, and it outlined steps and concerns that would need to be addressed before offering an official digital currency.

The executive order encouraged federal agencies to study possible risks presented by the popularity of cryptocurrencies and consider the US digital dollar’s creation. Federal agencies have several months to prepare their findings to inform new regulations.

The Wall Street Journal reports that 16% of US Adults (40 million people) have invested in, traded, or used crypto. This number includes both volitile currencies like Bitcoin and stablecoins.

We must take strong steps to reduce the risk that digital assets pose to consumers, investors, and business protections; financial stability and financial system integrity; combating and preventing crime and illicit finance; national security; the ability to exercise human rights; financial inclusion and equity; and climate change and pollution.

Earlier fears that negative action could be taken by the United States could have boosted crypto prices. This executive order seems to mitigate that fear for now and demonstrate the willingness of the US government to incorporate crypto into the existing financial framework for agencies to address while potentially adopting a digital currency of its own. The executive order asked the Justice Department to review if congress needs to authorize the creation of the digital currency or if the executive branch has the authority on its own.

This regulation on the crypto industry is not the year’s first. On February 14, 2022, after BlockFi Lending LLC (“BlockFi”) offered users the opportunity to stake crypto currency, the act of lending out crypto holdings through a broker in exchange for interest payments was deemed by the Securities and Exchange Commission to be a violation of the Investment Company Act of 1940.

BlockFi settled the charges with the SEC for $50 million and settled charges brought in 32 states for an additional $50 million. For now, BlockFi users in the United States cannot stake additional crypto; however, the good news is that BlockFi is attempting to be the first crypto lending platform to register with the SEC under the Securities Act of 1933 to begin offering crypto staking opportunities to United States citizens with a new product – BlockFi Yield.

Though it is not guaranteed, should BlockFi Yield be approved with the SEC, it would be the first crypto lending platform to be registered and would be a large step forward to legitimizing investments in crypto and crypto staking. Please see my previous article for more information on the potential impacts of this SEC settlement to crypto staking and to other brokers offering crypto lending in the United States.

EUROPEAN UNION

It is not just the United States that is seeking regulations on crypto. The European Parliament, the directly elected legislative body of the European Union, which has been pushing technology regulations, recently modified its stance on crypto in a new policy document on March 7. Previously, the regulations sought to ban proof-of-work crypto mining, which is a system of mining cryptocurrencies like Bitcoin, because of the environmental impacts caused by the large amount of power crypto mining consumes.

Now proposed regulations would remove the ban on proof-of-work crypto mining. Instead, the new policy focuses concerns on how crypto was being used to fund terrorism and launder money. Other countries, including Canada, echo similar concerns and intend to introduce new laws to prevent money laundering and financing terrorism through crowdfunding and other payment services. On February 28, these concerns were legitimized when Israel announced that it seized 30 crypto wallets from 12 accounts that were held by the Hamas terror group.

The European Union policy stated:

The global reach, the speed at which transactions can be carried out and the possible anonymity offered by crypto asset transactions make crypto-assets particularly suitable for criminals seeking to carry out illicit transfers across jurisdictions and operate beyond national boarders.

The proposed crypto regulation will be voted on by the the Committee for Economic and Monetary Affairs on March 14, 2022.

CHINA

In 2021, China became one of several dozen countries to ban or restrict crypto in recent years. Similarly, Egypt, Iraq, Qatar, Oman, Morocco, Algeria, Tunisia, and Bangladesh have banned crypto currencies. 42 other countries have limited crypto or effectively banned it through restrictions on banks and exchanges.

China banned crypto slowly. First, China outlawed financial institutions from transacting in crypto. Later, in June of 2021, China barred all domestic crypto mining. Finally, in September of 2021, China outright banned all cryptocurrencies in the country. Previously a leader in crypto mining, the prohibition initially caused large selloffs in crypto. Similar to western countries, China stated it was concerned about fraud, environmental impacts, and money laundering.

However, despite banning cryptocurrencies, China is promoting its own digital version of the Yuan. This could give China more control and insight over what its citizens are spending money on and where.

Strangely, China is on the forefront of embracing NFTs on its own state-backed blockchain network, which is not linked to outside cryptocurrencies. Similarly, China is investing in building its own metaverse opportunity that would be highly regulated.

For China, the primary concern appears to be maintaining control while moving into the increasingly more digitized world of the future.

SOUTH KOREA

The president-elect of South Korea, Yoon Suk-yeol of the People Power Party, won on March 9, 2022 on campaign promises of drastic deregulation and pro-investor policies for real estate, stock market, and digital assets. President-elect Yoon will be sworn in on May 10 for his five-year term.

President-elect Yoon promised tax cuts on capital gains and deregulation of shorting stock and trading cryptocurrency, including the the creation of new digital coins in South Korea. Specifically, cryptocurrency capital gains up to $40,500 (40 million won) will be tax free, initial coin offerings will be permitted, and crypto exchanges based in entities from South Korea can issue new digital currencies.

Conclusion

Crypto has become mainstream to the point where many governments are no longer seeking to stop their spread. Rather, world governments are adapting their existing financial regulations and laws to incorporate the new digital currency revolution. Some governments, such as South Korea, are even embracing the digital currencies and supporting their growth. However, other countries, such as China, continue to oppose deregulated crypto but still embrace some digital currency, which the government is able to control.

The future of crypto investments is still quite speculative, as demonstrated by the volatility of the prices; however, the practical uses of these digital assets are becoming undeniable, as shown by the war in Ukraine. Many Ukrainian refuges are carrying their assets in digital currency form to provide an easy way to transport their wealth as they flee. Further, many Russians are turning to crypto as the value of their Ruble continues to fall and other fiat currencies are no longer available to them.

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