Cryptocurrency regulations have already become yesterday’s news, whenever a country comes out with a new framework, traders are surprised that they hadn’t implemented one in the past, rather than be surprised by the law itself.
At this point, crypto regulations have become engraved in the minds of traders, and they’ve become a standard of the financial law, but what is it with cryptos that force the government to take legal action so fast? In fact, sometimes so fast that they introduce a very unrealistic set of laws?
Let’s find out the three most prominent reasons why governments scramble to tack on a regulatory sandbox on cryptocurrencies
The crypto tax
Not every country that has introduced a cryptocurrency regulation has tacked on a crypto tax on top of it yet. However, experience shows us that the regulation is just the first step of introducing the capital gain tax.
Many traders don’t understand as to why would cryptos, which are not even classified as money or securities be taxed by the government. In most cases, like South Africa, cryptos are referred to as hobbyist commodities, therefore are exempt from tax, right?
These are the arguments we usually hear from the market insiders, but the truth is that the government does indeed regard cryptos as tradeable assets and thus taxable income.
In most cases, we’d find laws that force either the trader or the crypto exchange to disclose information about their trading habits. This is done in order to calculate the taxable income that the person has generated.
Just recently did we find out about G20’s decision to enforce a global crypto regulatory framework, which requires every transaction above $1000 be verified through the companies or the individuals themselves.
Many believe that this is an attempt to increase the crypto tax revenue source as much as possible, but in fact, it’s just as much about security as it is about the money.
You see, the governments are not very friendly with things they cannot control or track. Therefore, they tend to face much more issues than benefits through anonymous transactions.
Things like money-laundering cases and irreversible scams become more apparent. Therefore introducing the verification law provides them with the opportunity to protect the investors as well as pocket some money while they’re doing it.
Protecting local laws
The second reason is to protect already existing laws and frameworks in other industries. The most common cases are to protect the local banks, which could actually find a deficit in customers should cryptocurrencies become even more widespread than they are now.
However, there are other industries that usually require protection as well. For example, Norway is trying to keep cryptocurrencies at bay in order to protect its local wagering laws.
For those who don’t know, Norway prohibits any and all online wagering in the country and monopolizes the offline operations with state-owned companies. Having an anonymous transaction method enter the country would jeopardize their attempts at maintaining the current regulation.
Although Norway doesn’t ban cryptocurrencies, it places them under a strict regulatory framework which allows it to verify every crypto holder in the country. By doing this, they’re able to find and terminate any and all unverified foreign wagering websites where one of their citizens may try to make a deposit.
This is just one example however, there are dozens more where countries try to protect their already existing laws from the “freedom” of cryptocurrency transactions.
This is the rarest occasion, although it’s not completely out of the question. Countries that have experienced third-party pressure to introduce a crypto regulation are few and far between, but they’re still a worthy case study as it could be the case in the future again.
The most common cases we can expect are the EU member states. Even today, many member states are being criticised by the EU authorities for not following their “union-wide” laws to the letter. The most prominent case in Germany, which had decided to ban wagering activities completely, while the EU encourages a free market.
It’s not out of the question to have the EU introduce a union-wide regulation on cryptocurrencies. They definitely haven’t held back on traditional financial assets when they started the ESMA restrictions, so why should they hold back now?
Another case which is currently in progress is the FATF regulations on crypto transactions as mentioned earlier. It will be a global phenomenon that countries will have to follow regardless of their affiliation.
Next comes Hong Kong, which is under constant pressure from Mainland China to put very strict regulation on cryptocurrencies, but thanks to differentiating values and laws, HK managed to somehow retain its authority over the crypto law. It hasn’t completely banned them like China has, but has introduced a regulatory sandbox for “maintaining the peace”.
Is this all governments want?
This is not even the tip of the iceberg as there are so many personal reasons, goals and interests hiding behind all cryptocurrency regulations.
In most cases, they are genuine laws to protect investors from unnecessary harm. But in most cases, these genuine feelings are used to mask ulterior motives.
In most cases, whenever you hear a country introduce a crypto law, you can expect them to mention one of the three reasons mentioned above. The only other argument would be the prevention of terrorism financing, which isn’t even 0.001% of the whole crypto transaction frequencies.
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