A Tale of 2 Continents: Contrasting Legal Approaches to Crypto … – Blockworks
Cryptocurrency has been around since the launch of Bitcoin in 2009. Since then, it has gained significant traction, prompting governments around the world to consider its legal implications. However, the way different countries treat cryptocurrencies varies, with some embracing them as an innovative technology while others remain skeptical.
In this article, we’ll explore two contrasting legal approaches to cryptocurrencies – that of the United States and that of the European Union (EU).
The United States
In the United States, cryptocurrency is treated as a commodity rather than a currency. The Commodities Futures Trading Commission (CFTC) oversees cryptocurrency trading on exchanges, while the Securities and Exchange Commission (SEC) regulates Initial Coin Offerings (ICOs) and other cryptocurrency-based securities.
Furthermore, cryptocurrency transactions are subject to taxation as property sales, with capital gains tax applied to any profits made on the sale of cryptocurrencies. The tax approach also applies to payments made using cryptocurrencies, which are considered bartering transactions, and are thus taxed accordingly.
The CFTC has approved several Bitcoin futures contracts on exchanges, meaning that investors can now buy Bitcoin futures on regulated exchanges. This approval has given cryptocurrencies more legitimacy in the eyes of the government and institutional investors.
However, the United States remains divided on the issue of cryptocurrencies, with some policymakers believing that cryptocurrency is a threat to the current financial system. This skepticism has slowed down regulatory progression in the US, with policymakers unable to agree on a comprehensive regulatory framework for cryptocurrencies.
The European Union
The EU has taken a more cautious approach to cryptocurrency regulation. The European Securities and Markets Authority (ESMA) has issued a warning to investors about the high risks associated with investing in cryptocurrencies, stating that “it is currently unclear whether, and to what extent, cryptocurrencies, as currently designed and conceived, will satisfy existing legal, regulatory and supervisory requirements.”
Similarly, the European Central Bank (ECB) has voiced its concerns about the potential risks of cryptocurrencies. The bank has issued a report warning about the risks associated with cryptocurrency regulation, including computer security issues, terrorism financing, and potential market manipulations.
The EU has adopted a wait-and-see approach to cryptocurrencies, with various member states having different approaches to regulating them. Germany has been more welcoming of cryptocurrencies, with the country having legalized Bitcoin as a legal payment method, while France has introduced a cryptocurrency regulatory framework.
However, the EU has recently introduced the Fifth Anti-Money Laundering Directive, which includes provisions for cryptocurrencies. The new law requires cryptocurrency exchanges to register with the relevant authorities, perform customer due diligence, monitor suspicious activities, and report any suspicious transactions.
As cryptocurrencies continue to grow in popularity, governments around the world are grappling with how to regulate them. The United States and the European Union have taken different approaches to cryptocurrency regulation. The US views cryptocurrencies as commodities and employs a light-touch regulatory approach that has legitimized cryptocurrencies in the eyes of institutional investors. On the other side, the EU has taken a more cautious approach concerning cryptocurrencies, opting for a wait-and-see approach to innovation, keeping the risk factors in mind.
Given the continued growth of cryptocurrencies, it is likely that both the United States and the European Union will continuously revise their regulatory approaches to minimize risks while embracing the technology.
Overall, the contrasting legal approaches on cryptocurrencies highlight the continued debate in the finance industry on how to deal with cutting-edge innovations that are taking the financial world by storm.
As countries around the world increasingly grapple with how to regulate cryptocurrencies, two very different approaches have emerged from two very different continents. In the United States, policymakers have taken a generally hands-off approach to the regulation of digital assets, preferring to allow the market to develop and mature before stepping in with more concrete rules. In contrast, European regulators have been much more active in setting rules for how cryptocurrencies can be traded and used within the continent.
The differences in approach are reflected in the current state of the cryptocurrency markets in the two regions. In the US, digital assets are widely available and widely used, with a number of large exchanges and trading platforms operating legally and with minimal supervision. This has allowed for a vibrant and rapidly evolving ecosystem that has produced a number of innovative products and services.
In Europe, however, the situation is more complex. While there are certainly cryptocurrency exchanges and trading platforms operating in the region, they are subject to much more stringent rules and regulations than their American counterparts. Regulators in Europe have been quick to crack down on activities that they view as risky or potentially harmful, such as initial coin offerings (ICOs) and margin trading. As a result, the cryptocurrency markets in Europe are much more tightly controlled than those in the US.
So which approach is better? It’s difficult to say definitively, as both have their pros and cons. On the one hand, the US’s laissez-faire approach has allowed for a more dynamic and innovative market to emerge, as startups and entrepreneurs are free to experiment and try new things without the burden of excessive regulation. On the other hand, this lack of oversight has also led to a number of scams and frauds, as unscrupulous actors take advantage of the lack of regulation to defraud investors.
In Europe, the tighter regulatory framework has helped to prevent some of these frauds and scams, by forcing companies to undergo more screening and scrutiny before they are allowed to operate. However, this also means that the market is more restricted and less dynamic, as companies are forced to operate within a more constrained environment.
Ultimately, the best approach is likely somewhere in the middle, with regulators striking a balance between protecting consumers and allowing for innovation and growth. As the cryptocurrency markets continue to evolve and mature, it will be interesting to see how regulators in both Europe and the US adapt their approaches to better serve the needs of investors and entrepreneurs alike.