Crypto Currency Regulation: 2018

It’s all about perception.

Today, the legal status of crypto payments varies from jurisdiction to jurisdiction and is still undefined or changing in many of them.

In general, most countries consider crypto currencies and payments to be legal. What has been under attack is the lack of some payments to be uncompliant with financial legislation, such as anti-money laundering acts (AMLA) and/or know-your-client legislation (KYC).

A great overview of the crypto currency regulation in 2018 can be found at BitcoinMagazine with the following conclusions:

1. The United States: No coherent direction on its cryptocurrency regulation.
2. Canada: No specific regulation but positive approach.
3. Venezuela: Working on its own oil-backed “petro” crypto currency.
4. Japan: More welcoming of cryptocurrencies than its Asian neighbours.
5. China: Taking ever-increasing actions to clamp down on all things cryptocurrency.
6. South Korea: Uncertainty and potential negative regulatory impacts.
7. Singapore: Relatively lax compared to many of its Asian counterparts.
8. India: Clamping down on cryptocurrencies.
9. Australia: Regulation remains uncertain but potentially industry-friendly.
10. European Union + UK: Remain united in their plans to regulate cryptocurrencies.
11. Switzerland: Open and friendly: Wants to be “THE” Crypto-Nation.

Is Regulation Needed?

I strongly believe that the time has come to hold the crypto ecosystem to the same standards as the rest of the financial system.

I do not fear financial regulation on crypto currencies. Instead, I hope it will be implemented as soon as possible in order to get fair competition and a safe marketplace.

However, when we talk crypto currencies, a bunch of new players are in town. And they do not spend time on legal analyses or wait for permission to launch their new ideas on how to transfer values directly from wallet to wallet. Instead, they protect their anonymity using a clever combination of peer production, cryptographic algorithms, distributed databases and decentralized consensus mechanisms in their online communities.

But crypto currencies are much more than cryptographic algorithms, distributed databases and anonymity. It’s a revolutionary new way of financial transactions. How many times have we waited for days to receive an international bank transfer not knowing, where in the system the amount is stuck? With crypto currencies, everything is fast and traceable, and it’s a serious threat to the established financial system.

The Giant and the Paper Check

Just remember the financial crisis, when Morgan Stanley needed a 9 billion dollar infusion in order to survive. The agreement with the Japanese investors was reached on a Sunday, but the funds could not be transferred in the weekend. Not even between two international banks. The next day was a bank holiday, so in order to survive Columbus Day, the Japanese investors had to cut an absurd USD 9 billion paper check to safe Morgan Stanley. That’s not only crazy, it’s a symptom of a financial system, that needs to be re-invented.

Not even the most ultra-conservative and regulated market, the financial sector, is safe from new tech developments and legal challenges.

Schumpeter and the Creative Destruction

For about a hundred years ago, Joseph Schumpeter called the phenomena on changing business cycles and the rise and fall of economic players for creative destruction. Schumpeters point was, that entrepreneurial innovation and new developments are aimed to destruct the weakest link in the market. “Creative destruction” is necessary to build up new economic players to make the free market stronger and less fragile.

Fact is, that Central banks and regulators are struggling to deal with crypto currencies. However, besides implementing policies to regulate and control the market, they are also embracing crypto currencies and trying to incorporate these in their portfolio:

1. The Dutch Central Bank has created its own cryptocurrency (for internal testing and circulation only)
2. the European Central Bank and the Bank of Japan have launched a joint crypto currency research project
3. the Swedish “Riksbanken” (in fact: The world’s oldest central bank) is aiming to introduce its own crypto currency, and even
4. the People’s Bank of China (!) is testing its own prototype cryptocurrency.

My point is: If Governments and Central Banks etc. are willing to embrace crypto currencies and to hold the crypto ecosystem to the same standards as the rest of the financial system, they are doing the crypto community a big favour and re-inventing themselves. Because of their many features, most crypto currencies are superior compared to traditional fiat currencies with their limited attributes.

Interested in more crypto law? Read my blog on the legal aspects of crypto currencies here. Good luck with your crypto investments — and please do not hesitate to contact me, if you have any questions or comments to the above.

Advokat Jeppe R. Stokholm is based in Zürich, Switzerland. The area of expertise is corporate affairs, including M&A, Venture Capital, Private Equity and Crypto Law. Advokat Jeppe R. Stokholm represents several international oriented Law Firms, Auditors and Family Offices on a case-by-case basis and provide discretionary counselling to global operating companies and private UHNW clients.

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