Global Cryptocurrency Regulatory Policies in 2024

In the new year, regulatory efforts in the

cryptocurrency

space are expected to intensify. These regulations will expand to cover anti-money laundering and counter-terrorism financing risks, the behavior of cryptocurrency operating companies, and regulatory actions related to token sales. In both the United States and the United Kingdom, there are no signs of regulatory actions slowing down. The European Union is set to become the first major jurisdiction to formally enact a comprehensive set of cryptocurrency industry laws and regulations in 2024.

Analysts expect that the focus areas for 2024 will extend beyond the overall trend of increasing regulatory scrutiny. They predict that financial institutions will establish more robust risk management frameworks and increase capital and liquidity requirements to reflect the current economic environment. Additionally, the importance of data and artificial intelligence is continuously rising in both traditional finance and the cryptocurrency space, leading to an expected increase in the demand for data governance and model risk management in global cryptocurrency regulation. Analysts also anticipate that sustainability and Environmental, Social, and Governance (ESG) factors will play a larger role in international cryptocurrency regulation, while cybersecurity remains paramount, as digital asset platforms continue to be targets for hackers and fraudsters.

Exploring the regulatory landscape of the cryptocurrency industry and future legislative expectations from a geographical perspective：

American Cryptocurrency Regulatory Policies

Cryptocurrency regulation in the United States is a combination of state and federal oversight, allowing multiple agencies to participate in controlling the industry. These agencies, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), largely leverage existing legal structures to regulate digital asset activities.

In 2023, the SEC and CFTC initiated over 200 enforcement actions against cryptocurrency companies. The backdrop for heightened regulatory activity in the United States is filled with bankruptcies, fraud, fraudulent operations, and illicit fund flows within the industry.

As 2023 drew to a close, some participants in the cryptocurrency space criticized regulatory agencies, especially the SEC, for their approach to regulating the industry. They once again called for policymakers and regulators to clarify cryptocurrency laws and adopt a more comprehensive rule-making approach.

However, these requests were largely ignored. By the end of the year, the SEC faced multiple legal setbacks, particularly in cases against Ripple (XRP) and Grayscale. On December 15th, the regulatory agency rejected Coinbase's petition to establish new rules for the cryptocurrency industry.

Anton Titov, CEO of Archway Finance, a fiat-to-cryptocurrency payment processor, believes the SEC's decision is reasonable. As he explained, the agency's responsibility is to protect investors, maintain market integrity, and promote capital formation. Therefore, he believes rejecting Coinbase's petition is entirely in investors' interests. “Because most people's involvement with cryptocurrencies this year and next year is purely speculative. Even for utility tokens, speculation equals ambition to make money, which equals investment. So, the SEC's actions are entirely in the interest of investors and an attempt to maintain market integrity.”

At the same time, Titov pointed out that this decision also highlights the SEC's reluctance to fully embrace cryptocurrencies. He believes the agency sees Bitcoin and stablecoins as threats to established and controllable currency flows. Furthermore, in his view, U.S. regulatory agencies are not intended to be “innovation hubs” for new technologies like blockchain and digital tokens, indicating a fundamental disconnect between their mission and the goals of the cryptocurrency industry.

Despite the SEC's reluctance to fully embrace cryptocurrencies, with the market capitalization of certain cryptocurrencies reaching $500 billion, U.S. lawmakers have taken notice, leading them to draft more legislative proposals to regulate cryptocurrency activities.

One such proposal is the bipartisan Responsible Financial Innovation Act (RFIA), which aims to classify most digital assets as commodities. It would primarily assign oversight responsibility to the CFTC and establish regulatory requirements for stablecoins.

The Biden administration also issued an executive order outlining the U.S. government's approach to cryptocurrency regulation. Additionally, a bill passed by Congress in 2021 requires new reporting requirements for individuals involved in large-scale cryptocurrency transactions, effective January 2024.

According to the cryptocurrency advocacy group CoinCenter, the Infrastructure Investment and Jobs Act mandates that any entity receiving $10,000 or more in cryptocurrency as part of their regular business operations must report the transaction to the IRS. Failure to report within 15 days of the transaction could result in felony charges. The legislation is self-executing, meaning no additional regulatory measures or enforcement actions by government agencies are needed upon enactment. Once signed into law, it takes immediate effect and is enforceable. Therefore, all U.S. citizens dealing with cryptocurrencies are now subject to this law.

Many predict that U.S. efforts to pass cryptocurrency legislation in 2024 will primarily focus on two bills: one seeking federal oversight of stablecoins and the other proposing a comprehensive approach to the overall cryptocurrency market structure.

The Payment Stablecoins Clarity Act, initiated by House Financial Services Committee Chair Patrick McHenry, may be one of the first legislative items to address in 2024. The bill passed the committee stage in July. However, SEC Chairman Gary Gensler compared stablecoins to money market funds and suggested that funds pegged to the dollar should fall under the jurisdiction of his agency, which observers believe could pose a barrier to the smooth passage of the stablecoin bill.

The second bill, the 21st Century Financial Innovation and Technology Act, may also face challenges as it proposes shifting more responsibility to the CFTC and requires regulatory agencies to outline clear paths for digital assets transitioning from securities investments to commodities.

The approval of Bitcoin ETFs could enhance the legitimacy of the cryptocurrency industry. Several asset management companies, including BlackRock, Fidelity, and WisdomTree, have successfully launched their BTC spot ETFs.

Finally, the 2024 elections could have a significant impact on digital asset legislation, with lawmakers' attention possibly shifting from cryptocurrency regulation to reelection campaigns.

European Cryptocurrency Regulatory Policies

With the implementation of the Markets in Crypto-Assets Regulation (MiCA), Europe has made a significant leap forward in cryptocurrency legislation. This regulatory framework represents the first attempt within the European Union to coordinate the regulation of digital assets and their related activities across jurisdictions. MiCA is a crucial component of the EU Commission's broader strategy to integrate cryptocurrencies and blockchain technology into the financial services industry. It forms the foundation of cryptocurrency regulation in the EU, aiming to synchronize diverse laws across member states while striking a delicate balance between encouraging financial innovation and mitigating the unique risks associated with various types of digital assets.

By 2024, cryptocurrency asset service providers (CASPs) and cryptocurrency issuers (CAIs) operating within the EU or serving the entire EU market will be required to comply with a unified rulebook, replacing the previously disjointed national frameworks.

As the European Securities and Markets Authority (ESMA) and the European Banking Authority (EBA) develop regulatory technical standards (RTS), implement technical standards (ITS), and provide guidance, the application of MiCA is expected to be further refined in the coming year. Meanwhile, EU member states will also deploy their legislative tools to support the rollout of MiCAR, RTS, ITS, and guidance documents.

Asian Cryptocurrency Regulatory Policies

While China imposed a complete ban on cryptocurrency usage in 2021, several of its neighboring countries have embraced the industry, shifting the regulatory landscape in the region towards consumer protection and transparency.

Leading this trend in 2023, Singapore announced new regulations aimed at protecting individual traders, set to take effect in mid-2024. These rules include restrictions on obtaining credit for cryptocurrency trading, banning incentive measures to encourage trading, and prohibiting the use of locally issued credit cards to purchase cryptocurrencies.

Meanwhile, Hong Kong has adopted a more liberal stance, welcoming cryptocurrency companies and initiating its own cryptocurrency licensing regime. By implementing a comprehensive regulatory framework, Hong Kong aims to establish itself as a global hub for virtual assets, with more developments expected in 2024. Currently, regulatory authorities in Hong Kong classify cryptocurrencies into security tokens and utility tokens, with the former falling under the jurisdiction of the Securities and Futures Commission (SFC).

Japan, on the other hand, has been laying the groundwork for the growth of its crypto economy, even considering web3 as a key pillar of its economic roadmap. From a regulatory perspective, cryptocurrencies in Japan are categorized into several types, including cryptocurrencies, stablecoins, security tokens, and other categories like NFTs, each subject to different legislative oversight. Holding and selling cryptocurrencies are regulated under the Payment Services Act (PSA), with no specific prudential requirements for digital assets. However, service providers must securely maintain a specific proportion of customer funds, for example, through cold wallets. The PSA amendment in June 2023 further clarified the status of fiat-denominated stablecoins, distinguishing them from other digital assets. Currently, regulations limit stablecoin issuers to banks, remittance operators, and trust companies, with intermediaries required to register with regulatory authorities and comply with strict AML/KYC guidelines.

Expectations for 2024 indicate that as regulatory oversight and clarification within the cryptocurrency space continue to strengthen, creating a safer and more conducive environment for cryptocurrency-related activities, the cryptocurrency industry will continue to grow.

Summary

The cryptocurrency regulatory policies in the various regions mentioned above underscore the global trend of tailored regulatory measures for the cryptocurrency industry. Anticipated cryptocurrency regulations are expected to further refine and strengthen these measures, nurturing a more robust and sustainable cryptocurrency market where innovation flourishes under the supervision of regulatory authorities.