In the upcoming years, the United Kingdom will be scrutinizing on the movement of cryptocurrencies. This is mainly due to the concern about their use in criminal activity. In the US, there is also an urgent need for the cryptocurrency industry to be regulated to avoid tax evading individual. They also illegal activities from happening in the industry. Many countries around the world are also worried about how they will take an approach towards regulating Bitcoin and many other cryptocurrencies within the space.
There are increasing calls for regulation of the cryptocurrency market, which is rapidly approaching a market capitalization of $1 trillion. Currently, there is little agreement on what form of regulations should be implemented. This is a given because the cryptocurrency industry is fairly new and a lot of people are unsure about how they should regulate the area.
Cryptocurrencies are based on theblockchain, which is a distributed ledger technology that originated as of payment facilitation alternative to traditional currencies. However, it is also traded on on exchanges as highly speculative investment assets. Recently, there has been a rapid increase in the number of initial coin offerings, which also saw the amount of fraud is increasing because these founders typically take the money and run away with it. More start-ups are using initial coin offerings as a method to raise money,andit reduces the cost of fundraising as well as eliminating the need for a venture capitalist that requires ahigh amount of return.
More start-ups are using initial coin offerings which offer preallocated investment stakes new token issues. It has become a matter of concern, especially in China and South Korea that has effectively banned initial coin offerings.
A co-ordinated regulatory approach towards cryptocurrency is important globally. A clear and coordinator regulatory approach will help to increase the flow of institutional capital into cryptocurrency market. Hence, this will further strengthen corporate governance within cryptocurrency companies. The trick for theregulator is to balance considerations of investor protection system. They also need to protect innovation encourage capital formation in a multi-jurisdictional setting. At the moment, many regulators are unsure about what they have to do. There has been a rapiddivergence in the regulation of cryptocurrencies and initial coin offerings across jurisdictions.
In China, Korea,and Vietnam, there have been outright bans on initial coin offerings. In Japan, the country is embracing cryptocurrencies. Meanwhile, the United Kingdom is sitting on the sidelines and seeing how everybody else is reacting towards it. Before they do anything to regulate the space. Meanwhile, South Africa offers zero protection to ICO investors. Due to the varying definitions and the legal nature of cryptocurrencies, regulators around the world are feeling hesitant and unsure of how they can regulate the space.
When it comes to ICO, it is important to consider the precise nature of the offering. It is not only dependent on the structure but also on its context. It can change very quickly and it has-characteristics of financial instruments. Hands, the tokens which are issued under the ICO can be as diverse as a currency, commodity, security, property et cetera. Agreeing on a taxonomy of cryptocurrencies defined by their use cases is one of the most urgent has which are faced by regulators.
However, there has been suggested is to organize digital currencies into three different categories which are cryptocurrencies, crypto commodities,and crypto tokens. Under these categorizations, cryptocurrencies will be currencies, crypto commodities will be utilities,and crypto tokens are recognized as securities. The lack of standardization across a jurisdiction is a wider problem. It is highly problematic because the nature of these assets is cross-border.
Cryptocurrency companies often use the distributed nature of these assets, which sit on digital ledgers, which are held by multiple token holders to make the argument that there is no issuer. Therefore, they are not securities are not subject to any particular jurisdiction securities law. There are also a number of cross-border regulatory questions arising in relation to the home jurisdiction of the issuer. More complicated questions are arising from the emergence of cryptocurrencies in the market.
Another issue with cryptocurrencies is that they are easily transferable. Therefore, it’s very difficult to trace their origins as well. Jurisdiction shopping by token companies can see them being issued in less onerous jurisdictions like Japan. However, the transfer of the cryptocurrencies could land retail investors into stricter jurisdictions such as the US.
One of the problems with this is that it allows companies to pick and choose jurisdictions with regulatory rules, which are favorable to them. Hence, it makes money laundering much easier.
The role of government
It is clear the government should support investment into technological development. They have the power and the financial resources to do so. Blockchain cannot ignore because the potential to transform economies too big for it to be ignored. At the moment, many offshore banks have been receiving bad press lately because of cryptocurrency.
There is a lot more to be learned about potential applications of international best practice and corporate governance in cryptocurrencies. For instance, ICOs need to be regulated more strictly because it is our good target for people that want to preyon naive investors.
What will a coordinated global approach to cryptocurrencies look like?
By having a standard code of conduct for a global compact, this can stop token companies from cherry-picking jurisdictions to their advantage. However, not being signatories to the code can leave these token companies outside of the market. These standard regulatory core are very important, especially in the investment community. It has been noted that there has been a significant surge in the number of establishment looking to invest on ICO is on behalf of their investors. Therefore, this will boost regulation and innovation.
Unlike institutional investors, retail investors can withstand and benefit from tokens volatility upside over time. A critical regulatory approach with long time horizon and high corporate governance standards can help start-ups with the capital support and security to make their investments more impactful. Institutional money can also review the climate impact of Bitcoin which is highly energy intensive.
Without government regulation, they can potentially reduce the potential of digital currencies from becoming a public good to an asset that amplifies volatility. Taking all this into account, it is important not just for investors or regulators, but also for issuers to be aware of the legalities of ICO and any other digital currency investment. Certainly, global regulators are trying their best to understand the situation and get up to speed when it comes to regulations.