Bitcoin regulations have become a popular topic these days, given that more and more countries are announcing either their support of or, in some cases, their hesitation in accepting Bitcoin as a currency. Because of that, it can be a little confusing trying to keep up with all the regulations and restrictions that each country might have.
The state of Bitcoin regulations in different countries
There is no one answer to the question, “is Bitcoin regulated?” Every country (or state, in the case of the U.S.) has its own stance regarding cryptocurrencies like Bitcoin. To give you a better understanding of how cases vary, let’s take a look at all the countries that have given a clear indication of how they see Bitcoin.
The United States
The United States is playing things safe by allowing Bitcoin exchanges to operate within the country, leaving each state to regulate them as they see fit. That doesn’t mean that Bitcoin is legal tender yet, though, as the country’s government hasn’t made any announcement regarding that matter. Take Paxful, for example—despite being regulated by the U.S. government, certain states still won’t allow the platform to operate within their borders.
However, that doesn’t mean that they can’t tax Bitcoin. The reasoning for this is that the currency is legal in most states. The Internal Revenue Service (IRS) recently published a bulletin defining virtual currencies as properties and acknowledged that they can be used as a medium of exchange in certain environments. Classifying Bitcoin as property means that Bitcoin transactions will be subject to the same taxes that apply to property transactions.
Similarly, Singapore allows Bitcoin exchanges to operate but requires them to register with the Money Authority of Singapore. Using Bitcoin as a legal tender has not been accepted either, as Singapore’s tax authority sees Bitcoin as a “good.” This means that the Goods and Services tax (what some may call Value Added Tax in other countries) applies to Bitcoin.
China’s involvement with Bitcoin took center stage in 2021 with its announcement that Bitcoin and activities associated with it (mining, trading, and even storing) would be banned in the country.
The news came around the same time that whispers about China producing its own cryptocurrency came about. Those whispers would be shut down by the People’s Bank of China when they later stated that the reason behind the ban was concern over the security of people’s assets.
India is also taking a more careful approach to Bitcoin. Earlier this year, the Reserve Bank of India announced that it still won’t recognize Bitcoin as a legal tender. However, they are aware that Bitcoin can (and will) still be used and have proposed a 30% tax on all Bitcoin transactions.
El Salvador’s take on Bitcoin was well known when the country first announced its acceptance of the currency as a legal tender. El Salvadorian president Nayib Bukele stated in a tweet, “[Bitcoin] will bring financial inclusion, investment, tourism, innovation, and economic development for our country.”
The National Bank of Ethiopia (NBE) recently warned the public against using illegal digital currencies since these have not been recognized by the government as a transactional payment method. This hesitation was pinned on Ethiopia facing challenges with money laundering schemes facilitated through cryptocurrencies. This came about as the Central African Republic took steps to legalize Bitcoin transactions.
Bitcoin regulations to watch out for
Understandably, Bitcoin regulations are always subject to change, especially after big movements in the market and in the community. Because of that, it’s highly recommended that anyone participating in the market keep up to date with the latest developments.
Take the most recent crash last May as an example. As a result of the rapid drop in value, U.S. treasury secretary Janet Yellen began to pressure congress to pass regulations on cryptocurrencies, particularly stablecoins.
Across the pond, the council presidency, along with the European Parliament, agreed to a proposal that covers issuers of unbacked crypto assets. In simpler terms, this agreement (markets in cryptocurrency assets, or MiCA) aims to grant stablecoins more stability to make them a more reliable asset.
Pros and cons of Bitcoin regulation
Will Bitcoin regulations really help the community and market, or do the negatives outweigh the positives? Let’s go through the various pros and cons discussed by Bitcoin traders, miners, and investors.
The most apparent advantage of having regulations is the fact that security and stability are the priority of the said regulations. We can pin this on the fact that governments will want consumer protection for all Bitcoin users and to keep people safe from sudden changes in market value (with impacts similar to a recession).
Because of this, regulation will bring about rules that function similarly to what we can find in traditional stock markets. This includes:
Preventing insider trading
In simple terms, insider trading is a concerted effort between an investor and a member of the company to take advantage of large changes in an asset’s value. Regulations will aim to prevent this by implementing strict guidelines on how investors and members of the company should operate.
As of now, the Federal Deposit Insurance Corporation (FDIC) doesn’t insure deposits made in cryptocurrencies. Regulations will come with a fix for this, ensuring that accounts are kept safe, at least to a certain degree.
Discourage rug pulls and fraudulent coins
Lastly, with regulation comes a blanket layer of security that aims to discourage rug pulls and similar fraudulent cases. This should come as a welcome change, given how many have already fallen victim to altcoins that promised too much.
This might seem a little unnecessary for those who have been part of the Bitcoin community for a long time, but its regulation provides newcomers with some peace of mind when they get started. These same regulations are also cited as positive news for established Bitcoin investors.
The overall effect is a more stable Bitcoin ecosystem, thanks to the watchful eyes of experienced financial experts and regulatory bodies. This stability serves its value as well, preventing fluctuations similar to those that we’ve experienced in the past.
On the other hand, many argue that regulations go against what decentralized finance (DeFi) stands for. After all, the whole point of decentralization is to bypass the traditional model of financial institutions and to give the “power” back to the people. With regulations, the government is once again “on top.”
Take smaller Bitcoin projects as an example. Assuming that regulation becomes a trend with government institutions, over-regulation may lead to the fear of having those smaller projects smothered under waves of restrictions and similar bureaucratic processes—much like we see in traditional banking establishments.
Remember how we mentioned that regulations might be good for investors? Well, that same reason might make it more difficult for casual investors to enter the market. This means that participants in the community and market would be restricted to those who already have some form of financial know-how—something that, again, goes against the goal of DeFi.
Now, this isn’t to say that regulation of all forms is dangerous. Rather, the idea is that regulation, when overdone, could be a slippery slope that would bring us back to where we started in the realm of fiat currencies.
Should Bitcoin be regulated?
So what does all this mean for you, the Bitcoin trader, miner, or investor? Right now, it just means a lot of waiting while the world decides how to classify Bitcoin. At this point, the frequent debates on how to classify cryptocurrencies within the scope of finances make it difficult for institutions to create a fair set of guidelines that would serve everyone involved.
As it stands now, Bitcoin’s utility is already in a good place, with more infrastructure to support its transactions. The most important thing right now is to keep yourself up-to-date with the latest changes. As more and more countries begin to play around with the idea of accepting Bitcoin as legal tender, the closer we get to having a better understanding of how we can integrate Bitcoin into our daily lives.