As of December 21, 2023, cryptocurrency regulation has become a complex and dynamic global issue. It continues to attract the attention of policymakers and regulators. The rapid growth and changing nature of crypto assets is often poorly understood by those in power, making regulation a hot potato for policymakers.

Global cryptocurrency regulation

In 2023, many countries made progress in developing and implementing cryptocurrency regulations, a global trend that suggests cryptocurrency market regulation is moving in a more structured direction.

According to a PwC survey, more than 30 countries have focused on key areas. These include licensing of cryptocurrency exchanges and strengthening anti-money laundering (AML) and counter-terrorist financing (CTF) rules.

Additionally, the focus is on implementing the “travel rule” policy and developing a stablecoin payments framework.

Main regulatory focus areas

•Licensing system: Countries are increasingly establishing licensing frameworks for virtual asset businesses to ensure a regulated operating environment.

• Anti-Money Laundering and Counter-Terrorist Financing Measures: Countries have almost universally updated their anti-money laundering and counter-terrorist financing regulations to cover cryptocurrency transactions. It reflects a concerted effort to prevent illegal activities.

• Travel Rule Policies: An increasing number of countries are adopting or considering implementing travel rules that require crypto service providers to record and share transaction details.

•Stablecoin Regulation: Stablecoin regulation has become a priority following the TerraUSD crash in 2022. These are often pegged to fiat currencies and require a different regulatory approach.

Global Patterns and Changes

The regulatory environment varies widely across regions. In the EU, the Markets in Crypto-Assets (MiCA) regulation, adopted in June 2023, is one of the most comprehensive crypto legislation. It provides a unified framework applicable across EU member states, affecting local businesses and those that serve EU customers.

In contrast, countries such as Kuwait and Oman have taken drastic measures. For example, Kuwait's approach is one of the most restrictive in the world, prohibiting companies from providing virtual asset services and using cryptocurrencies for payments.

Atlantic Council Survey Findings

The Atlantic Council study shows that cryptocurrencies are legal in 32 of the 60 countries studied, partially banned in 19 and generally banned in eight.

It is worth noting that crypto assets are fully legal in G20 countries that account for 50% of global GDP, although regulations vary greatly. Interestingly, there is a weak correlation between cryptocurrency adoption and regulatory restrictions in these countries.

Risks and obstacles

The challenge in regulating cryptocurrencies is balancing their innovation with potential risks. These risks include market volatility, potential fraud, environmental issues due to the energy-intensive nature of some cryptocurrency mining processes, and the use of cryptocurrencies in illegal activities.

Consumer protection remains a significant issue, with less than a third of the countries studied having strong rules in place to prevent fraud and ensure online security.

Conclusion

Global cryptocurrency regulation is a rapidly evolving area. Countries are trying a variety of approaches, from comprehensive frameworks to more targeted measures.

The future of cryptocurrency regulation will likely involve ongoing adjustments and refinements as the technology and its use evolve. This dynamic scenario makes it a critical area for investors, users, and regulators.