Cryptocurrencies are heading their way to the political and economic spheres. Bitcoin has been accepted as legal tender by the government of EI Salvador; and Wyoming State of the USA has introduced crypto-currency friendly legislation. With the emergence of the global cryptocurrency market (current net value – more than $2.5 trillion), different institutional actors continue to grow. Digital currency is a modern-day transformative technology.
The rising importance of digital currency has raised a question – how do we regulate the crypto-assets and the roles played by trusted EU authorities such as the Governments, Central Banks, and the regulators. Following their Digital Finance Strategy, the European Commission presented a proposal on “Market in Crypto-assets” in September 2020. This legislative proposal aims to create a well-balanced European market for crypto assets as it intends to establish a legal taxonomy of crypto assets and introduce a set of rules for the issuers and the service providers.
The legislative proposal is based on the regulation of cryptocurrency exchanges and stablecoin. The value of stablecoins depends on the value of another asset such as fiat money or gold.
How to Regulate the Cryptocurrencies?
An average of 11% of Europeans stated that they have employed cryptocurrency to buy goods or hire services. This rate is likely to grow across the EU in the future. According to the experts, many Europeans are not fully aware of cryptocurrencies, and this is the reason they do not have cryptocurrencies. Therefore, it is important to educate people now about it and people should also know who regulates cryptocurrencies and how they regulate them.
Regulators have two options worldwide – strictly controlling and centralising the future direction of crypto assets, for instance, through the establishment of a central bank digital currency (CBDC); or following an open legal and regulatory framework that enables the stablecoins to increase the number of the currencies that help run the operations smoothly. The second option seems more acceptable.
Are the Regulators, Central Banks, and Governments doing Enough to Bring Cryptocurrency into the Regulated World?
Currently, regulators focus mainly on two specific areas – taxation reporting and Initial Coin Offering. Capital gains from cryptocurrency is an underreported area and it is a concern for tax authorities, such as the IRS, globally. Recently, the IRS has started to take action. They have already garnered 14,000 Coinbase account users. This implies that IRS now monitors the earnings of people trading cryptocurrency. In 2019, the IRS included a line in Form 1040 to check if a taxpayer earned money through virtual currency.
The Bank of England has revealed the importance of regulating payments made with stablecoins the way banks deal with payments. However, as yet, the Central Bank has still not determined whether they should issue Central Bank Digital Currency (CBDC) or not. This concept has raised several issues that governments, central banks, and European citizens should consider and address accordingly.
The increasing number of fraudulent cases involving cryptocurrency is increasing and indicates that the regulators, central banks, and governments should be more careful about the regulation of cryptocurrencies in the future.
Is Cryptocurrency The future and Here to Stay?
The use of cryptocurrency needs pivotal measures or a more sustainable future. Cryptocurrency comes with many challenges and concerning issues. If these challenges and issues would be addressed efficiently, the future will be better. The digitalisation-based cryptocurrency development is going to stay here as it offers profound opportunities. A new era is upon us and the regulators and governments need to prepare now. Article by GRC Management Compliance Consultancy Services.