Abstract : Since the birth of cryptocurrency, there have been many problems such as volatile token prices, fundraising fraud and exchange hacking. According to the ChainDD App record, on September 4, 2017, cryptocurrency and ICO were officially characterized as illegal fund-raising in China. This meant that any token financing activities were explicitly prohibited.
The central bank has issued several announcements to remind investors to pay attention to the risks of cryptocurrency. On August 26, 2018, Banking Insurance Regulatory Commission, Office of Central Cyberspace Affairs Commission Cyberspace Administration of China, the Ministry of Public Security of the People’s Republic of China and other departments issued risk warnings to remind the public to prevent illegal fundraising of virtual currency.
How to formulate an effective regulatory framework for the chaos in the cryptocurrency industry is an important question that many governments need do answer. In the past year, several governments have continuously explored and strengthened the regulatory policies in the cryptocurrency field. As a result, the the regulation of cryptocurrency has tightened.
Overview of Global Digital Currency Regulatory Policies
After studying the digital regulatory policies of the world's major blockchain countries and regions in the past year, the regulation of digital currencies in various countries and regions around the world is divided into five categories.
1. Explicitly prohibition of digital currency: China and India.
The first major category includes the countries and regions with the strictest regulation of digital currency. Both the Chinese and Indian governments have strict prohibition policies on digital currency, but they still support the application of emerging technologies in the blockchain.
On September 4, 2017, the People's Bank of China, the Central Network Information Office, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission issued a joint announcement called "On the Prevention of Financing Risks of Token Offering,” which officially classifies ICO as an illegal fundraising method and expressly prohibits all the token issuance financing activities. The central bank has issued several announcements to remind investors of the risks of digital currency.
In April 2018, entities regulated by central bank are banned to deal with and provide virtual currency services and settlements for any individual or business entity. If such services are already available, they must be terminated within a certain period of time and digital currency is not allowed to enter the country's payment system.
2. Cautious supervision and gradual exploration: South Korea, Russia, Vietnam and Thailand.
Countries and regions in this category are very cautious about digital currency policy. Some industries are prohibited, but some businesses can be carried out within the scope of supervision in this category. Representatives include South Korea, Russia, Vietnam, and Thailand.
South Korea’s regulation of digital currencies is more in a swinging phase. After the barbaric growth period, South Korea’s regulation of digital currency has become stricter, and it has been strictly controlled in terms of real-name certification and background checks.
Russia's attitude toward cryptocurrency is relatively indifferent. Instead of considering cryptocurrency as virtual currency, the government divides it into legal financial instruments and financial derivatives.
Due to the ICO scam in Vietnam on 8th, April, 2018, investors lost 650 million US dollars. At present, the Vietnamese Prime Minister has issued instructions to several ministries to supervise the active but dangerous ICO and cryptocurrency markets.
The Securities and Exchange Commission of Thailand (SEC) has published detailed rules on the country's cryptocurrency and ICO regulatory framework, and only companies registered in Thailand can apply for a permit.
3. Relatively loose regulation and “Regulatory Sandbox” mode: the United Kingdom and Singapore.
Initiated by the UK, the policy called “Regulatory Sandbox” clarifies that innovative companies can be restricted to the original legal norms in a certain range as long as they are in the sandbox. In the UK, cryptocurrencies and tokens are regarded as private currencies. The ICO issuer operates on its own interpretation of the law and assumes its own policy and legal risks.
In June 2016, Monetary Authority of Singapore (MAS) launched the “Regulatory Sandbox.” The authorities are friendly to the digital currency and the regulation is relatively loose. Appropriate supervision of the issuance of ICO requires prior filing and authorization by the Monetary Authority.
4. Incorporating it into current securities supervision: the United States, Australia and China.
Governments in this type of region have incorporated digital currency into their existing securities regulatory systems and regulate it by the existing securities regulatory model. Representatives include the United States, Australia, and Hong Kong.
US states hold different attitude towards digital currencies. From a federal perspective, there are indications that US regulators are more inclined to classify digital currencies into securities.
On 5th, September, 2017, the Hong Kong Securities Regulatory Commission issued the "Statement on the First Token Issue", which clearly stated that the token issued by the ICO is subject to the "securities" defined by the regulations and is subject to the Hong Kong Securities Law. The companies will take full legal responsibility in relative ICO activities.
5. Active promotion and regulated supervision.
Countries and regions in this category have a positive attitude towards digital currency, admitting the legal status of digital currency in the region, and effectively managing digital currency through strict regulatory measures. Representatives include Japan and Malta.
On September 6, 2017, the National Tax Agency of Japan announced that proceeds from cryptocurrencies are subject to individual income tax and are classified as “miscellaneous income.” After Coincheck's NEM event, an intensive review of the domestic digital asset exchange was conducted by the Japan Financial Services Agency in March 2018, and eight exchanges that had submitted applications withdrew their license applications. Although the supervision has been strengthened, on the whole, Japan still holds a supportive and encouraged attitude.
In June 2018, six exchanges in Japan, including Japan’s largest exchange bitFlye, received rectification. bitFlyer was checked for problems in the security system, involving issues such as preventing money laundering, terrorist financing, and unauthorized access to channels.
From the beginning of April 2018, the Maltese government has been committed to promoting the digital currency bill, and formulated some drafts on digital currency, namely the MDIA (Malta Digital Innovation Agency) draft; the TAS (Technical Service Providers Act) draft; and the VC (Virtual Currency) draft.
TOP10 Global Regulatory Policy
According to CoinMarketCap statistics, on September 4, 2017, the global market value of the cryptocurrency market was 162.265 billion US dollars, and the total amount of digital currency was only 1,077. By September 4, 2018, the total market value of the global digital money reached 237.312 billion US dollars, with a total of 1,910 digital currencies. The highest value of the global digital money market peaked in January 2018, with a market capitalization of $823.8 billion, up 407.89 percent from September 4, 2017.
The government's regulations and policies had a starring role in the digital currency show of the value boom and bust. By combing the ten major events of global regulatory policies in the past year and comparing them with the global digital currency market,we further analyzed the impact of the correlation between the digital money market and government regulatory policies.
Due to the influence of China and Hong Kong's regulatory policies, the overall market value of the digital currency market showed a downward trend, reaching a trough on September 15, 2017 at 116.749 billion. The value fell by 28.05 percent compared with September 4, 2017.
On October 13, 2017, the overall market value of digital currency was reported at $165.475 billion, returning to the market value before the “9.4” plunge.
On Nov 14, 2017, the Monetary Authority of Singapore (MAS) issued the “Guidelines for the Issuance of Digital Tokens” to clearly define the legally regulated digital token issuance activities. A digital token issued that represents the ownership of an enterprise's equity or assets held by an investor, or which can be converted into a corporate bond, is governed by the securities and futures act. Affected by the news, the market value of digital currency has changed slightly in a few days.The global digital currency market reached its peak in January and August 2018, with a total market capitalization of $823.8 billion, up 407.89 percent from September 4, 2017.
On April 6, 2018, the Financial Action Agency (FCA) issued the “Declaration of Authorization for the Company to Issue Encrypted Token Derivatives”, indicating the sale and purchase of crypto tokens or other token derivatives issued by ICO. FCA authorization is required to arrange transactions, recommendations or other services to meet the relevant regulatory activity standards.After the six day ago, the global digital currency market started a rebound in the whole month, rising from $256.487 billion to $469.77 billion, an increase of 83.16 percent.
Japan's financial services agency (FSA) will adopt further regulation of domestic cryptocurrency exchanges on May 7, 2018. Digital currency has fallen at that time. As of the date of publication (September 4th), the total market value of the global digital currency market reached 237.312 billion, a decrease of 71.19 percent compared with the highest point, and an increase of 46.25 percent compared with the market reacted on September 4, 2017.
Regulatory Policy TOP10
1. On September 4, 2017, the People's Bank of China, the Central Network Information Office, the Ministry of Industry and Information Technology, the State Administration for Industry and Commerce, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the seven departments of the China Insurance Regulatory Commission jointly issued a joint announcement on the prevention of financing risks of token issuance. Formally identifiable ICO is an illegal fund-raising and expressly prohibits any token issuing financing activities.
2. On September 5, 2017, the Hong Kong Securities and Futures Commission issued the “Statement on the First-Generation of Tokens”, clearly stating that the token issued by ICO is subject to the “securities” defined by the regulations and is subject to the Hong Kong Securities Law. The company will The relevant activities bear full legal responsibility. Regardless of where the company is registered, the ICO, which is the subject of the Hong Kong citizenship, must obtain a license and file it.
3. On November 14, 2017, the Monetary Authority of Singapore (MAS) issued the “Guidelines for the Issuance of Digital Tokens,” which clearly defines the digital token issuance activities regulated by law. If the issued digital token represents the corporate equity or asset ownership held by the investor, or can be converted into a corporate claim, it is subject to the Securities Futures Act.
4. On December 7, 2017, the two Australian Houses formally passed the 2017 Amendment to the Anti-Money Laundering and Counter-Terrorism Financing Act, which made it clear that digital currency is not property or asset, but just a digital representation of value. The amendment adds to the supervision of digital currency on the basis of the original Anti-Money Laundering and Counter-Terrorism Financing Act. The amendment abolished the definition of e-currency and increased the definition of digital currency.
5. In February 2018, Japan's national tax agency launched a full tax plan on digital assets, ruling that digital asset income belongs to individual "miscellaneous income" and is taxed at a progressive rate.
6. On April 6, 2018, the Financial Action Agency (FCA) issued the “Declaration of Authorization for the Company to Issue Encrypted Token Derivatives”, expressed as issued by the ICO encrypted tokens, or other tokens of derivatives trading, arranging trades, recommendations or other services to the relevant regulatory activity standards, just need to get the FCA authorization.
7. On May 7, 2018, the Japan Financial Services Agency (FSA) will further regulate domestic cryptocurrency exchanges. The new rules require exchanges to monitor customer accounts multiple times a day for suspicious fluctuations; Separate client assets from exchange assets; Store cryptocurrency holdings only on offline systems. The exchange will also face more stringent anti-money laundering measures, requiring “know your customer” (KYC) checks, such as verification, and multiple password protection for large transfers.
8. On July 4, 2018, the Thai Securities Regulatory Commission (SEC) announced regulations on digital tokens. The issuer must be a company registered under the laws of Thailand; For institutional investors, individual investors with high net worth, venture capital firms and private equity firms, ICO may issue unlimited shares, but the amount of funds raised by retail investors may not exceed 300,000 baht(about $9,050); ICO can only accept one baht.
9. On Jul 26, 2018, according to the Vietnam News reported the Vietnam Securities Commission (SSC) issued a statement prohibiting domestic listed companies, securities companies, fund management companies and securities investment funds from participating in any issue related to encrypted digital currencies , trading and brokering activities, and require them to comply with anti-money laundering laws.
10. On Aug 22, 2018, the US Securities and Exchange Commission (SEC) announced that it had rejected nine Bitcoin ETF listing applications from ProShares, Direxion and GraniteShares. The three agencies applied for two, five and two ETFs respectively.