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Cryptocurrencies present an impactful stride in the financial system, especially to individuals lacking access to financial services. Through digital assets and blockchain technology, users worldwide can conduct transactions at lower fees, generate passive incomes, and establish stronger communities.
Despite various downsides such as volatility or complex understanding, virtual currencies show a growing interest and recognition from millions of retail and institutional investors.
However, the pace of adoption largely depends on monetary sovereignty since the authorities have regulatory powers on whether to permit or scrap off cryptocurrency dealings.
While it is expected that most countries/states and their financial authorities will implement digital currencies, a section of regions views the new era of cryptocurrencies as a threat to the financial industry. Below is an overview of how the powers of a state oversee the management of cryptocurrencies.
Monetary Sovereignty and its Current Stand on Crypto Adoption
Monetary sovereignty refers to a country’s ability to handle the amount of money in supply at little or no cost while meeting every obligation set on the currency. Therefore, it involves key players from the government, monetary authorities, and other entities to formulate a framework for regulating cryptocurrencies. Bearing that in mind, here’s an outlook of the crypto adoption pace in various regions across the globe:
At present, U.S. citizens can purchase, sell, and possess cryptocurrencies. However, various monetary regulators have different views on cryptos and how they should govern these currencies. One such entity is the Financial Crimes Enforcement Network (FinCEN) which oversees the Bank Secrecy Act. According to the BSA statute, financial institutions facilitating crypto transactions must account for and record the transaction details in an IRS/FinCEN form.
The main aim of the BSA rule is to counter any money laundering motives, hence requiring comprehensive information on transactions over $10,000. It is also crucial for crypto exchanges or any crypto-related business to register as a Money Service Business. Platforms that fail to meet the MSB registration will violate the Bank Secrecy Act regulation.
The Office of the Comptroller of the Currency is another monetary body that features the crypto sphere. In July 2020, the OCC allowed American banks to carry out various digital currency services ranging from custody, tax auditing, and fiat-crypto exchanging.
What’s more, the same body also issued a green light in 2021 that enabled banks to run as nodes on the blockchain network. All in all, U.S. lawmakers remain vigilant and cautious in regulating digital currencies to avoid the possibility of destabilizing the dollar.
China’s continued opposition against virtual currencies is visible as it set out to shut down crypto exchanges and Initial Coin Offerings in 2017. Going by the People’s Bank of China sentiments, the act of sourcing funds from the public through ICOs violates Chinese law.
In 2021, numerous warnings were issued to banks and settlement platforms, restricting them from supporting crypto-related transactions. Reports from a study indicate that crypto mining in China alone accounts for 65% of the world’s hashing power. The disruption of mining activities manifests in 2021 following the closure of major mining hubs in Inner Mongolia, Sichuan Province, and many more.
While it may seem that China is entirely focused on outlawing cryptocurrencies, the country still strongly believes in the potentials of blockchains and digital assets. It hopes to run as a cashless economy in the future by unleashing the digital yuan, a CBDC that will launch during the 2022 Winter Olympics.
Russia’s crypto adoption attempts have been dynamic over the years. In 2017, the state termed cryptocurrencies as high-risk digital assets that ultimately lead to money laundering.
The Bank of Russia, in collaboration with other federal government bodies, actively searched for the appropriate approaches towards regulating and correctly defining cryptocurrencies.
Support for digital currencies remained at a minimal level in the past, leaving the Bank of Russia to categorize crypto transactions as a contributor to financial-related crimes. However, the situation is steadily changing after the nation announced its plan on launching new cryptocurrency laws, which would take effect at the beginning of January 2021. According to Russia’s latest development, the country is updating its criminal and penal codes to confiscate cryptocurrencies acquired through fraudulent means.
Japan’s crypto adoption efforts show impressive implementation progress by its monetary system. In April 2017, the legislature began to acknowledge bitcoin as a legal payment tool. Japan’s Financial Services Agency also advised crypto exchanges to follow the new AML/KYC procedures, which curb illicit transaction activities.
In terms of tax regulations, the National Tax Agency calls for the taxation of any crypto gains that a trader may incur. By March 2020, Japan had more than 20 crypto exchanges legally operating within its boundaries.
The majority of the lawmakers in El Salvador managed to pass a law that aimed at making bitcoin a legal tender. The approval was successful, making El Salvador the first country to endorse bitcoin with full support from its president.
Aside from legalizing Bitcoin as a regular currency, the new law hopes to establish training programs for users unfamiliar with executing crypto transactions. Additional information in the law includes paying taxes using the dominant coin and relieving crypto exchanges from paying capital gains tax.
The road to crypto adoption continues to expand as financial authorities from different countries examine the most effective regulatory framework.
While it is common to see countries opposing digital assets, regulatory measures prove to be a practical step towards acknowledging cryptocurrencies. As time goes by, the fate of crypto regulations in other regions will become clearer and lead to either a positive or negative trend in the virtual currency market.