Cryptocurrency proponents often cite decentralization as one of the major benefits of replacing fiat currency with digital tokens. Decentralization keeps governments out of cryptocurrencies by nature. And yet, every cryptocurrency - from Bitcoin to Litecoin and Monero - is influenced by government action in one way or another. If it's not taxation, it is regulation.
So where are we at the close of the first month of 2019? Bitcoin's value is up and down. Just about every other cryptocurrency follows Bitcoin and its price fluctuations. On the regulatory front, this could be the year that some national governments decide once and for all how they want to address cryptocurrency.
It would appear as though there are five countries whose actions in 2019 could set the stage for the future of cryptocurrency. Those five countries are the UK, the U.S., Japan, China, and Switzerland. Let us take a look at each one in a bit more detail.
1. Crypto in the UK
To this point, the UK has remained fairly neutral in its relationship with cryptocurrencies. But that is likely to change thanks to a new bit of guidance issued by the Financial Conduct Authority (FCA) in late January 2019. The Guidance on Cryptoassets paper released by the FCA appears to imply that the UK government is ready to start regulating crypto.
Among several key points found in the guidance is the recognition of three kinds of tokens:
- Exchange - These tokens are designed for mutual exchange between individual parties. They are not issued or controlled by any central authority, like a bank or government agency. The guidance specifically mentions Bitcoin and Litecoin as two examples.
- Security - These tokens are issued as investments, in much the same way as stocks and debentures. As such, they would fall under the same regulatory purview as any other security in the UK.
- Utility - These are tokens that give holders access to specific products other than securities. The main difference between the Utility and Security tokens is that the former gives access to a product while the latter offers part ownership of an asset.
Of the three, the Utility token is the one we are most interested in from an online gambling perspective. If our understanding of the guidance is correct, a specialized gambling token would be considered a Utility token in the UK. It might be a token that is universally accepted at all online casinos or one that's good only at certain casinos all belonging to the same portfolio. Players could use it on everything from Mega Moolah to roulette.
It is significant that the FCA has proposed recognizing three different kinds of tokens. Such recognition virtually guarantees that the UK government will start regulating how digital currencies can be utilized. How far the regulation goes remains to be seen. With any luck, regulators will take the same minimalist approach they have long held toward online gambling.
2. Crypto in the U.S.
The U.S. has always been a tough country to read because of the way the U.S. constitution divides power between the federal government and individual states. Congress ultimately has authority over all things currency related, but they don't seem to be in any sort of hurry to come up with a unified framework through which to address crypto assets.
The problem with investing in cryptocurrency in the U.S. is that three different federal agencies claim jurisdiction over digital tokens. The Securities and Exchange Commission (SEC) claims jurisdiction inasmuch as they see cryptocurrencies as investments. But they have inexplicably defied their own official position by declaring that Bitcoin and Ethereum are not securities.
The Commodity Futures Trading Commission (CFTC) also claims jurisdiction over cryptocurrencies. They claim that digital tokens are more like gold coins than stocks or bonds, making them commodities instead of traditional securities.
Finally, the Internal Revenue Service (IRS) treats cryptocurrencies as properties rather than cash. Any income derived from trading cryptocurrencies is considered capital gains and taxed accordingly. This does not sit well with the Financial Crimes Enforcement Network (FinCen) and its view that digital tokens are no different to fiat currency.
Having so many hands in the proverbial pot makes it difficult to get a handle on cryptocurrency's standing in the U.S. That may change this year. Two members of Congress introduced a bill late in 2018 intended to create federal recognition of cryptocurrency, at least in terms of ICOs and taxation. Whether or not the bill sees the light of day this year remains to be seen.
3. Crypto in Japan
The environment for cryptocurrency in Japan is somewhat unique. For starters, Japan recognizes cryptocurrencies as a legally accepted means of payment for goods and services. The country is also one of the largest cryptocurrency markets in the world. Some USD $97 billion in crypto transactions take place in Japan every year. They are conducted by upwards of 3.5 million traders, the majority of whom are millennial entrepreneurs.
Oversight of cryptocurrencies in Japan is the domain of the Financial Services Agency (FSA). On the heels of 2017 legislation that recognized cryptocurrency as legal payment and introduced new regulatory measures of ICOs and exchanges, the FSA followed up by officially categorizing all cryptocurrencies as assets rather than legal tender.
Why do this? Because regulators were concerned that people investing in crypto thought that they were purchasing legal tender in the same vein as the Japanese yen. They wanted to clearly define differences between fiat currency and digital tokens.
Japanese legislators are expected to take up new legislation this year in an attempt to help the cryptocurrency market grow and expand. Perhaps 2019 could be the year that more Japanese citizens turn to digital tokens rather than continuing to pay with fiat currency. This could be the year that the amount of cash circulating throughout the Japanese economy finally starts to fall.
4. Crypto in China
If the UK and Japan mark the extremes of a liberal view toward cryptocurrency, China would be one of the countries on the other extreme. Cryptocurrencies in China are not banned altogether, as they are in a small number of other countries, but they can no longer be used for trading purposes. The Chinese government does not recognize cryptocurrencies as either legal tender or an accepted means of making payment.
In short, you can hold cryptocurrencies in China, but you really cannot do anything with them. You cannot legally use them to pay for goods or services and you can't convert them to fiat currency. Their only real use is as a means of barter.
This is strange, given the fact that China used to be the place to be if you wanted to mine Bitcoin. Miners in China commanded more than 50% of the mining market at one time. So what changed? The government began to crack down on fraud. Their efforts have had a stifling effect on ICOs and exchanges to the extent that Chinese investors are no longer putting their money into crypto.
The good news out of China is that they are still very much committed to blockchain. So even though the government does not look favorably on using currencies like Litecoin and Monero in place of fiat, their pursuit of blockchain technologies means they will continue to contribute to worldwide blockchain adoption.
5. Crypto in Switzerland
The Swiss government recognizes cryptocurrencies as properties that can be used for trading purposes without being recognized as legal tender. In essence, they have taken a purposely vague approach to regulation over the years. Regulators do their best to stay out of cryptocurrency unless specific questions needing official answers arise. As such, Switzerland is considered one of the friendliest environments for cryptocurrency and its related technologies.
Holders can use their cryptocurrencies in Switzerland to trade online. Buyers and sellers are free to conduct business as they see fit. In terms of taxation, profits from cryptocurrency trades are taxed just as profits on any other property. This makes the country awfully inviting for crypto-based businesses looking to relocate from more restrictive environments.
Wrapping it up
We can see from these five countries that the state of cryptocurrency in 2019 is all over the place. In the most liberal countries, people who possess bitcoins are free to do with them as they please. They can use them to pay for products, gamble online, or provide a little extra leverage in an investment portfolio. Countries like the UK and Japan are on this side of things.
On the other extreme, there are still many places in the world where cryptocurrency is either banned altogether or severely restricted. China and North Korea come to mind here. Most of the rest of the world lies somewhere between the two extremes.
The one thing most national governments have in common is a growing realization that they cannot continue to just ignore cryptocurrency altogether. As you know from reading the posts here at Coinbet.com, people are buying and selling with cryptocurrency irrespective of what government regulators think about it. Regulators are subsequently having to think about whether or not to get involved. We will see how it all plays out over the next 12 months or so.