The economic instability wrought by the COVID-19 pandemic also generated an uptick in the collectibles investment markets—including virtual assets. As governments and international bodies like the FATF move to catch up with modern trends, they have begun implementing regulatory practices on virtual assets like cryptocurrencies and virtual asset service providers (VASPs). These regulations have made 2022 the year of crypto regulations.
The Financial Action Task Force, an intergovernmental body that aims to combat global money laundering, is issuing recommended guidelines for its member countries to regulate the virtual assets space. Other institutions that monitor central banks and the Financial Stability Board are also mobilizing to bring order to the chaos of crypto’s big bang.
Watch This Space
We are launching a series of articles covering the regulatory practices of various countries around the globe. If you live in or do business in one of these countries, you will want to check out this information.
Our series will cover the plans for individual countries as the world prepares to supervise virtual assets’ investment, trade, and sales.
The Need for Regulations
The 2022 crypto crash led to a loss of over $2 trillion in value. Such a crash, and the possibility of others, have countries looking to add regulations in line with FATF’s guidelines in the name of economic stability.
Similar to a stock market crash, when several crypto coins began losing value, owners began fire-selling their holdings to prevent any hemorrhaging. However, the rapid sale sparked a race to the bottom.
Reuters reported in March that unregulated virtual assets could bypass economic sanctions imposed by governments and entities like the United Nations. For example, current regulations would not be able to stop supporting a sanctioned Russia with cryptocurrency transfers during its invasion of Ukraine.
When a country imposes economic sanctions like those levied on Russia, they will want to know what individuals or entities bypass the sanctions. The anonymity the crypto assets supply becomes a two-edged sword—at once shielding those seeking to do harm while arming everyday citizens with the ability to generate wealth.
As we covered in this post, the FATF is leading the fight against international money laundering. The unregulated nature of crypto’s introduction to the global economy has made it a go-to exchange medium for traffickers, launderers, and terrorists. Introducing regulations should stamp out several bad actors while providing a space for profit and innovation.
The State of Crypto
In 2017, virtual assets held around 14 billion USD in value. In November of 2021, that value skyrocketed to 3 trillion USD. Many countries are considering launching a digital coin tied to that country’s hard currency.
In March 2022, US President Biden signed an executive order to regulate digital assets. The EO focuses on the following:
- Protecting consumers and investors
- General financial stability
- Preventing illicit financing practices
- US leadership in global finance
- Harnessing financial inclusivity
- Garnering responsible innovation
The US and global institutions like the FATF are looking to lead the way in establishing regulatory practices around digital/virtual assets such as cryptocurrencies.
In the EU, officials have passed the “Markets in Crypto-Assets Regulation” (MiCA), applicable to all member states concerning all issuers and service providers of virtual assets.
With transparent rules and regulations, the EU hopes to provide:
- Prolonged legal security
- An innovative home for crypto talent
- Fail-safes against mass withdrawals
- Reduced exploitation and money laundering
For additional reading about MiCA, read this article from the Stanford Law Blog.
In October 2022, members of the G20 will discuss the reports produced by the Financial Stability Board (FSB) pertaining to the regulation and supervision of crypto-assets. According to the FSB, the global trading of such assets require a reduction in fragmentation—the separation of rules and regulations by distinct governing bodies.
The FSB will be focusing on the following in their remarks to the G20:
- Investor protection
- Market integrity
- Relieving vulnerabilities
- Financial stability
- Virtual asset service provider (VASP) oversight
The progress FSB and others are making with virtual assets will undoubtedly make 2022 remembered as the year of crypto regulations.
The End of the Wild, Wild West
For better or worse, regulations are coming to the crypto industry. Regulators hope to stabilize the volatile marketplace while leaving plenty of room for innovation.
The crypto-boom was historic. The world’s traditional financial institutions are working to catch up and monitor the explosive growth while ensuring the industry’s bright future.
The push towards regulatory practices and provider supervision should at least tell investors that digital assets are here to stay. The increase in security will weed out bad actors and invite risk-averse investors.
Stay tuned to our blog for this ongoing series about specific regulations around the globe and all of the up-to-date crypto news.