Current Cryptocurrency Regulations: A Comprehensive Overview of the Latest Guidelines and Laws (2024)

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Cryptocurrency is a digital coin that runs on decentralized blockchain technology. There are more than 9,000 crypto coins, of which Bitcoin and Ethereum are the biggest and best-known. Crypto is mainly used as a trading and investment opportunity and sometimes as an exchange to purchase goods.

Cryptocurrency regulators provide oversight to ensure a stable environment where digital assets can function and thrive. Regulations ensure the safeguards, enforcement, and investment potential of digital assets for users and investors against illegal activity.

Thousands of people invest in cryptocurrency daily, and regulators are required to oversee and create guidelines. Crypto regulations are constantly updated to ensure the growth of crypto while protecting investors and limiting its use for illegal activity.

Understanding Cryptocurrency Regulations

Crypto! “What is crypto?” is a question asked almost daily. Although crypto has existed for over a decade, many still need to familiarize themselves with its ins and outs.

The crypto market is a new and expanding market (Possible link opportunity to Is Crypto Dead?) in which digital money changes hands between users for services, purchasing, or trading.

Crypto trade on platforms for profit, and the industry lures millions of users. Crypto is a digital currency, meaning you cannot see it and live within the digital world.

Unlike fiat currency, like the $1 bill and other paper money, crypto isn’t tangible but is as actual as all other currencies. 

A big obstacle and worry those new to crypto struggle with is the fear that you cannot see or touch it, and you wonder how reliable it is.

Crypto’s unpredictability and unknown mechanics are a source of worry for currency regulators worldwide, especially for fraud and illegal activity.

Regulatory bodies like the SEC are in place to prevent crypto from becoming a form of payment for scammers or other illegitimate transactions.

Most cryptocurrencies, like Bitcoin and Ethereum, are legal and adhere to currency laws.

Governments provide procedures that vary in countries and jurisdictions to protect businesses and users from fraudulent acts like market manipulation, insider trading, tax evasion, etc.

Here are a few protections regulators provide:

• Accessibility — Regulators provide information on legitimate and illegitimate crypto coins to make them more accessible to users and businesses.
• Oversite — Regulators provide detailed oversite to reduce fraud and reduce consumer risks.
• Investor confidence — Regulators’ oversight and procedures inspire confidence and invite users to participate.
• Deter — Regulators help to deter illicit transactions like market manipulation and terrorist financing.
• Protection — Investor safeguarding is one of the most significant areas where regulators play a crucial part in preventing financial loss.
• Tax rules — Regulators provide all the tax regulations and information to users who want to follow the governing laws.
• Boost Blockchain technology — Blockchain tech is a handy tool, and regulators encourage businesses and provide the legal prosses to incorporate it.

Major Regulatory Developments in 2024

The United States is at the forefront of cryptocurrencies, and the SEC constantly oversees all aspects in this regard, including amending regulations to better its use and protect investors.

Over the years, the SEC has made numerous amendments, especially in 2024. Here are some of those amendments and how it affects the crypto market:

• Bitcoin ETF — Before January 2024, tracking large-diverse security collections and individual commodities in the Bitcoin market was challenging. The SEC approved Bitcoin’s ETF, allowing mainstream investors to partake.
• Definition of “Dealer” — Before February 2024, the term “Dealer,” especially within cryptocurrencies, was ambiguous. The SEC clarified the differences between a “Government securities dealer” and a “Dealer” in targeting entities that contribute $50 million or more to market liquidity.
• Enforcement-only mode — The SEC’s regulatory framework mainly applies to interpreting the existing security laws and following the court-forward approach. Since February 2024, the SEC has been in this mode regarding the crypto sector.

Key Aspects of Crypto Currency Regulations

Cryptocurrency regulations are essential; their guidelines and laws give users peace of mind. Various aspects require consideration and control, especially since this digital asset is so diverse, hard to trace, and inviting to those who want to use it for illegal activity.

Regulatory Jurisdiction

Cryptocurrency has exploded since its start a few years ago, and many, especially governing bodies, have needed help keeping up with its ever-changing structure.

It began as a speculative investment and expanded to a consumer market, not to mention that it is decentralized.

Because crypto is decentralized, it flows freely between different jurisdictions, making it hard to track and govern.

Every country has regulations, limits, and laws to add to its governing difficulty. Fiat currency follows universally governed rules, making it easier to regulate.

In countries like the U.S., crypto is closely regulated compared to other countries to prevent acts like tax evasion, terrorism financing, and other illegal acts.

Here are some of the most significant jurisdictional considerations for cryptocurrency: 

• Destabilizing fiat and causing financial instability
• Financing illegal and nefarious activity
• Harming consumer and business financial growth
• The transparency and traceability of transactions
• Overall currency regulatory power, especially across different countries

Finding an international solution to improve the governing of crypto is complex, and it is an ongoing process. Not all countries are invested in crypto and do not see it as a threat or high priority.

Here are some of the approaches different countries have regarding crypto: 

• United States — In the U.S., crypto is fragmentally overseen by the SEC, IRS, and CFTC, and all three vary in their definitions of digital assets.
• Canada — The government in Canada treats digital currency as a commodity, and their stand is progressive. Crypto requirements are comprehensive and include registration to trade on platforms.
• United Kingdom — The U.K. does not accept crypto as legal tender and only allows its limited use while providing some oversight to advance innovation. 
• China — As progressive as China is in the digital world, it takes a highly restrictive approach to cryptocurrencies and outright bans trading. 
• Switzerland — Switzerland is known as the crypto hub of the world. Here, crypto is legal, including its tokenization and acceptance of DLT securities. 
• European Union — The E.U. has a forward-thinking approach and introduced MiCA (Crypto-Assets Regulation) to standardize cryptocurrency regulations throughout numerous states. 

Licensing and Registration Requirements

The jurisdiction where you operate your cryptocurrency exchange determines the regulations and requirements.

Generally, these regulations mirror those provided by the FATF (Commodity Futures Trading Commission) and fall under three categories:

• Knowing your customer — The first rule is to collect all identifying information from your users to eliminate current and future suspicious activity and confirm that they are not subject to any sanctions.
• Monitoring transactions — All financial service businesses must constantly monitor transactions to avoid dealings that could involve financing terrorism, money laundering, and other financial crimes.
• Suspicious activity — Keep records, address risky activity, and report suspicious dealings to the relevant authorities under your jurisdiction’s AML (Anti-money laundering) policy.

Registering and acquiring a crypto license depends on where you live, and you must consider every aspect, including the legal side of it. In most jurisdictions, getting a crypto license differs, and to help you, I have included some general steps:

• Jurisdiction — A crypto license’s registered jurisdiction and the authorized capital investment size are essential. The application must also include its founders, beneficiaries, shareholders list, and the reputation of directors.
• Documents — The regulator will require standard identifying and crypto registration documents. Other documents may include a business plan, project team information, financial statements, and a description of services rendered, etc.
• Bank account — Opening a corporate account within the registered jurisdiction is a general requirement, although some do allow accounts registered elsewhere.
• Staff — Hiring certified staff with finance expertise in virtual assets will provide credibility to your application. Staff options may include compliance officers and AML officers.
• Protection and security — User data protection and security policies are vital aspects. 
• Software — The development of the technical exchange software and its application to the user must adhere to the requirements of the regulatory bodies. 
• Review process – The registration’s success is conditional and may require additional documents or development, and it is subject to standards and requirement compliance.

Anti-Money Laundering (AML) and Know Your Customer (KYC) Measures

Crypto runs on a decentralized system, making it hard to regulate, especially with its ability to instantly transfer money to almost any country worldwide. A

ML (Anti-money laundering) and KYC (Know Your Customer) effectively prevent illegal activity in crypto funding.

Governments rely on banking institutions to use measures like AML and KYC procedures to prevent money from being used to fund crime and terrorism. 

When cryptocurrency first started, it was a soft target, and numerous bad actors seized the opportunity to misuse its lacking guardrails.

One good example is BTC (Bitcoin). When BTC started, you only needed to create a wallet, and there was no need for any identification other than an email address. With such a low client information requirement, anyone can buy millions of BTC and transfer it into any account without oversight.

The lack of customer identification has caused many to use the opportunity to avoid paying taxes, financing criminal activity, paying bribes, hiding money, etc. 

Once governments realized crypto’s ability to cause extensive harm, they started implementing regulations to safeguard customers and financial institutions.

The AML (Anti-money laundering) policy was the first regulatory step governments implemented. 

This policy forces cryptocurrencies to provide the relevant authorities with a Suspicious Activity Report. Law enforcement then receives this report, further investigates, and takes the necessary steps.

KYC (Know Your Customer) helps identify who controls the crypto wallet, which is vital during SAR investigations. All crypto platforms are required to get the necessary details from account (wallet) holders, which include: 

• User name and date of birth.
• Show proof of address on an official document (bank statement or utility bill).
• Identification (Government-issued driver’s license or passport).
• Self-identifiers, for example, a selfie where the photo includes the user holding their identification.

Taxation Guidelines

How does the tax obligation work with crypto is a question I get asked the most. Taxing digital currency is tricky, but you must know the law because evading tax is a crime.

There are a few variations regarding crypto tax in different countries, but in the U.S., it falls under digital assets like bonds, stocks, and other capital assets.

Any money gained from crypto, such as income or capital gains, is taxed, but the tax amount depends on various factors.

Many users accumulate crypto as an investment. Here are nontaxable crypto activities:

• Using cash to buy cryptocurrency. 
• Donating crypto. Donating crypto is tax-deductible.
• Gifting Crypto. It is essential to know that large gifts could prompt other tax requirements.
• Transferring cryptocurrency within a singular user’s accounts or wallets.

Not all aspects of cryptocurrency are taxable, but there is legislation regarding profit and other gains due to its diversity and use as payment and earnings. Here are taxable activities for cryptocurrency:

• Selling or exchanging crypto for cash.
• Interest earned from crypto.
• Using crypto to purchase.
• Obtaining airdropped tokens.
• Receiving crypto as payment.
• Staking and mining crypto.
• Trading crypto for another digital asset.

Like any other financial transaction, cryptocurrency is subject to laws and regulations, including tax.

Noncompliance with tax laws is a serious offense and can result in criminal prosecution, including a five-year prison sentence and a fine as high as $250,000.

Security and Cybersecurity Measures

In some cases, a custodian keeps cryptocurrency safe. A contract stipulates the arrangement from the outset, and it can vary depending on the nature of the agreement.

Cryptocurrency regulators have strict guidelines regarding overseeing digital assets and enforce them vigorously.

A reporting party agrees to reflect its control of crypto on a balance sheet under the classification guidance specification CA 1.2. The agreement also carefully outlines steps for the crypto’s return to the client under ASC 815.

A reporting party that holds any cryptocurrency for a client has various factors to consider and must abide by the law and specifics stated within the agreement.

Here are the factors a custodian must consider when reflecting crypto on a balance sheet:

• Obligations — A custodian must abide by the contract, subject to the law set out by cryptocurrency regulators and the contract terms.
• Bankruptcy — The customer’s rights if a custodian files for bankruptcy.
• Control — How much power do the custodian and client have during crypto pledges, loans, or transfers?
• Security — The rights of a customer to transfer crypto to another wallet and to access the private key.
• Liability — Who carries the risk during crypto loss due to theft or fraud?
• Value — Who benefits or loses if the value of the crypto depreciates or increases?
• Ownership — To whom the crypto belongs.

The digital market encounters cyber threats and those who want to hack into these wallets. Good security is essential to avoid loss or theft, and here are the best ways to secure your digital assets:

• Password — Gaining entry to a wallet requires a password, and it is essential to create a password that is hard for anyone to guess.
• 2FA — Two Factor Authentication, like an app notification or a text message, is an added form of verification and security.
• Regular updates — Keeping software updated is vital when securing cryptocurrency.
• Suspicious activity — Avoid suspicious emails or links that force you to divulge personal information, which could reveal your password.
• Avoid using public Wi-Fi — Public hot spots are prone to cyber-attacks, and a secure network connection is best.

Market Manipulation and Insider Trading

One factor that affects cryptocurrency the most is market manipulation. A common occurrence is when a known crypto whale or someone pretending to have inside information regarding the sale of large amounts of crypto creates spikes or drops in the market. 

Trading platforms experience constant bombardment with market fluctuations caused by FOMO (Fear Of Missing Out), other market manipulations, and insider trading scams.

The CFTC in the U.S. has marked Bitcoin as a commodity and included it in the Commodity Exchange Act (CEA).

In 2020, Europe incorporated market manipulation and insider trading prevention legislation known as MiCA (Markets in Crypto assets) to protect the crypto market.

International Cooperation and Regulatory Harmonization

Crypto’s borderless nature is a significant factor, and finding an international solution to prevent its use to further criminal activity and to protect investors and financial institutions is a high priority.

Finding common ground is still early, but the U.S. and the European Union are constantly working on it.

The United States is at the forefront of combating digital currency fraud and other nefarious activity, and combining and sharing its legislative efforts with other countries is gaining acceptance globally. However, many countries need to invest more in digital assets, making it hard to find a collaborative solution.

Frequently Asked Questions (FAQs)

Are Cryptocurrencies Legal?

No private or public entities back crypto, including the countries involved and their laws, making it hard to argue for its legality.

How are cryptocurrencies regulated across different countries?

Some countries outright ban crypto, whereas others regulate it. Other countries do not have a stance and let it continue unregulated.

What Are the Risks Associated With Icos?

New ICOs are very risky, mainly because of their fluctuations, success rate, and influence on market sentiment. Another risk associated with new ICOs’ risk is their openness to fraud.

What Is the Role of Regulatory Bodies in Preventing Market Manipulation?

Regulatory bodies structure guidelines and laws to ensure that crypto functions legally and to prevent fraud, theft, market manipulation, and other illegal activity.

Is There a Need for International Cooperation in Cryptocurrency Regulations?

International cooperation regarding cryptocurrency is high on the list of some countries and less in others, which makes it hard to reach a consensus. The U.S. is working hard to find an international solution to protect crypto and its investors.

Conclusion

It is essential to stay updated with new crypto regulations to stay within the law and protect yourself from digital fraudsters. Crypto is a high priority in the U.S., and many other countries are constantly working to find a safe and prosperous existence for crypto’s development.

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