Cryptocurrencies

Cryptocurrency Regulations: Will It Affect Soaring Market Price?

August 31, 2017

We are entering into a new era. Bitcoin cryptocurrency has just increased from $1000 to over $4000 in 2017. As of today, over 1.5 billion USD have been raised through initial coin offerings (ICOs).

The world is waiting to see what will happen next. Nobody knows for sure how the cryptocurrency market is going to play out.

What the stance of regulators around the world is anybody’s guess. So far, the SEC has been notably quiet, while regulators in Asia have been more proactive.

Will regulators step up control on the cryptocurrency market, and how will they affect the cryptocurrency market?

Nobody has the answer to these questions right now. All I know is that we are stepping into uncharted territory.

Bitcoin Price Goes to the Moon

As seen from the bitcoin chart below, earlier in August 2017, bitcoin price has just surpassed the threshold of $4,000 setting an all-time record. The unregulated cryptocurrency market has left investors divided on whether they should take profit and quit the market or double their bets over a month.

bitcoin-charts

Source: https://coinmarketcap.com/currencies/bitcoin/

As of today, Y-T-D growth in Bitcoin price is at record high of 300%, according to Bitcoin Price Index (BPI). Media outlets everywhere are storming social sites with numerous stories of young “Bitcoin Millionaires”. While I suspect the sudden rise in bitcoin price is due to speculative forces, we cannot deny that there is now a greater acceptance of bitcoin as a currency and potential investment.

Something interesting to note –

Recently, various countries like the US, Canada and UK have installed Bitcoin ATMs to ease the purchase of bitcoins. Bitcoin fractions, as little as £10 or €10 can be bought using Bitcoin ATMs in various currencies – GBP, GIP, Euro Notes. Adoption rate of these Bitcoin ATMs has been positive, and the number of ATMs installed worldwide has now increased to about 1,500, the most number found in North America.

Source: https://www.statista.com/chart/7566/number-of-bitcoin-atms-by-country/

With the increase in adoption of bitcoin and cryptocurrencies, does it mean that hitting the “Buy” button tonight will make a timely investment?

Just like in every innovative market, the high time to catch the mammoth is always in the early days of robust. Is the sharp valuation in the cryptocurrency market today a bubble ready to implode in the near future?

While many ‘crypto-experts’ are still bullish on the cryptocurrency market, I tend to err on the side of caution. If you are an investor, you better keep a close eye on developments in the cryptocurrency regulations so that you won’t be caught off-guard when the tables start to turn!

Worrying Issues in Cryptocurrency Market Left Unanswered

Currently, bitcoin price is skyrocketing by its market capitalization value and price, but there are many worrying issues that are still left unanswered. The recent hacks into cryptocurrency exchanges are definitely one major concern and risk to look out for cryptocurrency investors.

At this moment, victims who have been hacked have found little success in recovery of their lost investments and have no recourse for losses incurred. Thus, while the adoption of cryptocurrencies as a medium of exchange and store of value have been gaining momentum, issues and regulations related to digital currency security are still playing catch-up. 

“BitLicense”: Monitoring the Cryptocurrency Industry from 2015

Back in 2014, when bitcoin price was less than 500 USD, a draft was introduced by U.S. Congress, proposing a 5-year delay for regulations in cryptocurrency businesses from 2015 to 2020.

However, in 2015, the New York State Department of Financial Services (NYSDFS) has proposed a draft regulating the digital currency industry – “BitLicense”. BitLicense is a business license that is required for companies in New York engaging in virtual currency activities – this includes the storing, controlling, trading or exchanging bitcoin or any other cryptocurrency. With these new regulations, companies are now required to collect records on their customers’ identity and submit the reports to the regulators, particularly for the transactions exceeding $10,000.

The question of how virtual currencies should be classified is still unclear: should virtual currencies be seen as standard payment tools or should they be considered securities that are traded for profits. The CFTC, Commodity Futures Trading Commission, classified bitcoin as a commodity in 2015. The U.S. tax regulation system, administered by IRS, taxes bitcoin as property.

US Bill S.1241: Travelers Need to Declare Bitcoin at US Customs from May 17

In May 2017, U.S. Bill S.1241 was adopted by the U.S. Senate, which states that digital currencies and devices must be detected at the Customs border. This is aimed to strengthen the US surveillance on evolving forms of value transfer.

Over the years, cryptocurrencies have developed a bad reputation of being used to fund terrorism. Hopefully with the closer monitoring of cryptocurrencies within US borders, this Bill will be a step forward in the fight against terrorism financing. 

The SEC Initiates Regulation of Cryptocurrencies in July 17

In July 2017, The U.S. Securities and Exchange Commission (SEC) initiated regulation of the virtual currency market. The SEC says virtual currencies cannot be exempt from being deemed securities. In it’s latest report, the SEC states: “U.S. federal securities law may apply to various activities, including distributed ledger technology, depending on the particular facts and circumstances, without regard to the form of the organization or technology used to effectuate a particular [cryptocurrency] offer or sale.”

What this all means is that the SEC is determined that virtual currencies cannot be exempt from being deemed securities. So, when investors invest in cryptocurrencies, they now need to ensure that they are compliant with the U.S. securities law. The guidelines from the SEC report also make mention of blockchain technology, which could therefore affect its capacity of growth.

Ultimately, if you are a cryptocurrency investor, you better keep a close eye on changes in regulations of cryptocurrencies. If more countries do not welcome cryptocurrency investments, you can expect their market price to be hit by the regulations. 

Cryptocurrency Regulatory Schemes in Other Countries

Starting from 2013, the Monetary Authority of Singapore (MAS) announced the bitcoin transactions as an optional choice of business entities, in which MAS won’t intervene.

As of November 2016, Russian Federal Tax Service also released the ban on the transactions of cryptocurrencies to bring them into the legal field of taxation.

Since July 2017, Australia also joined other countries in treating bitcoin as a currency to stay compliant with double taxation. A draft of the Anti-Money Laundering and Counter-Terrorism Financing Amendment Bill 2017 released on the Australian Parliament website requires all digital currency exchange service providers to register with Australian Transaction and Reports Analysis Centre (AUSTRAC). Hopefully, with closer collaboration between countries on digital currency regulation, countries can find a solution to stop terrorism financing and maintain the integrity of their financial systems.

The European Union is also considering more stringent regulations in the digital currency space. Before 2015, bitcoin was treated as a commodity, i.e. VAT needs to be applied for transactions involving digital currencies. In October 2015, the Court of Justice of the EU changed its stance and classified bitcoin as a means of payment, i.e. VAT is now exempt for digital currency transactions.

My Final Thoughts: Cryptocurrency Regulators are Stepping Up Their Game

In summary, as the use of cryptocurrencies increases and becomes more widespread, regulators around the world are starting to acknowledge cryptocurrency as an asset class and a means of payment.

And with that, we can expect more regulations to protect both consumers and businesses dealing with cryptocurrencies sooner or later. How these regulations will play out and impact general cryptocurrency prices is anybody’s guess. 

 

about author

Ani is a PhD Candidate and has worked as a Business Consultant and Financial Analyst. She has facilitated training sessions for Chartered Accountants (in her homeland country Armenia) throughout last 5 years. Ani has an academic type of personality with passion for research in the areas of Investing and Asset Management worldwide.