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2018: The Year of Regulations for Cryptocurrencies

by Asia Token FundDecember 7th, 2018

Too Long; Didn't Read

Currently, the regulators of the world are all facing the same problem. How should we regulate crypto-assets? The reason behind the mind-boggling issue is the nature of the token varies from commodities to derivatives.

Companies Mentioned

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By Summer Chan

Regulators of United States

For instance, the Securities and Exchanges Commission (SEC) labels cryptocurrencies as securities. On the other hand, the Commodity Futures Trading Commission (CFTC) identifies crypto-assets as commodities. CFTC suggested that Bitcoin has more similarity to gold than securities; the government neither backs it nor would it incur liabilities. Oddly, Financial Crimes Enforcement Network (FINCEN), the agency that governs AML/KYC, and U.S. Office of Foreign Assets Control (OFAC), view cryptocurrencies as money.

The last label of cryptocurrency is property, provided by the Internal Revenue Service (IRS). Unsurprisingly, the definition of the property in this context is not a building but a form of revenue subjected to tax.

Regulators of Singapore

On 30 Nov 2018, the Monetary Authority of Singapore (MAS), took an intriguing approach against cryptocurrencies. Instead of labelling them, MAS suggested digital tokens issuers/exchanges to examine the features of each token. The Digital Token offering guide released by MAS illustrated 11 case studies for the applicability of securities law on digital token issuer and exchanges.

If the token does not fall under any of the 11 case studies, does it mean the project owners could not issue the tokens? The short answer is no.

The long answer is that the onus is on the token issuer to seek legal advice, and where applicable, comply with prospectus requirements under the SFA before commencing on their token offering. Moreover, the legal advice has to be provided by a Singapore qualified lawyer.

Digital Token Issuers and exchanges should also be aware of the Payment Service Bill mentioned in the guide. Once the bill is passed, a licensing regime will be in place for the digital tokens issuers/facilitators; the license will seek to address the risk of money laundering and terrorism risk by requiring them to implement procedures that reduce the risk.

Rest of the world

Leaders of the world joined the G20 Summit and brought up the subject of cryptocurrencies during the discussion of sustainable economic growth. The whole of crypto market cap is currently worth $470 Billion, much higher than the major banks in the world (refer to Figure 1). It might not necessarily become a bubble, but the fluctuations of the crypto market can send ripples to traditional capital/forex markets. Therefore, summit members acknowledged that the global financial infrastructure is becoming more digitalised and have sought to take stronger measures on cryptocurrency and blockchain businesses. Furthermore, there were calls for the government to enact clearer tax laws on crypto assets and trading.

Figure 1