Regulation

Global Regulations Affecting Digital Assets Continue to Evolve

Updated on June 3, 2022

Despite the soaring popularity of digital assets, a significant portion of investors – retail and institutional alike – remain on the sidelines, waiting for regulatory clarity from their respective governments. This past week saw various steps forward in this regard, with examples coming in from around the world.

Regulatory Updates

While each of the following examples mark process, each is not necessarily positive. Despite a growing belief in the future of digital assets, there remains a healthy amount of skepticism surrounding their utility and potential effect on existing economies.

Cuba Legalizes Crypto Related Services

On April 26th, the Central Bank of Cuba announced a decision which has the potential to kickstart adoption of digital assets in the island nation. Based on released documents, the Central Bank of Cuba will begin issuing Virtual Asset Service Provider licenses (VASP) to applicants. These VASP licenses, which come solely from the Central Bank of Cuba, will allow for successful exchanges to openly and freely trade digital assets on their platforms. This move essentially legalizes services involving digital assets less than 1 year after deeming Bitcoin a legal means for payment.

While this move is most definitely a positive one that will see assets like Bitcoin become easier to access, restrictions do remain with the following not yet supported.

digital representations of fiat currency
digital securities
financial assets used in traditional banking and financial systems.

This development is a double-edged sword for exchanges operating within Cuban borders, as it also means the Central Bank of Cuba will begin cracking down on those that continue to do so without first obtaining a VASP. Those that are granted a VASP will also be subject to greater oversight, ideally preventing fly-by-night exchanges, and those that do not utilize sufficient safe practices from harming potential investors.

It is expected that the Central Bank of Cuba will begin issuing VASP licenses as early as May 16th, 2022.

Bitcoin Adopted as Legal Tender by Central African Republic

When El Salvador announced that it was making Bitcoin legal tender, digital asset enthusiasts rejoiced. It was a moment that marked significant mainstream adoption, and built upon a decade of financial clout already being forged by Bitcoin. Now, only months in to 2022, the Central African Republic (CAR) has followed El Salvador's lead in making Bitcoin legal tender within its borders.

The Bill, signed and announced by President Faustin Archange Touadera, makes the CAR the first African nation to take such a step. The nation has long struggled financially, and is typically viewed as one of the world's poorest. With this move to make Bitcoin legal tender, the digital asset has an opportunity to shine, hopefully facilitating the financial inclusion and independence often touted by enthusiasts.

Christos Krokides, Trader at ARK36, took the time to comment on this development, stating,

“Bitcoin adoption continues undefeated by any geopolitical or financial global matters. Even in such uncertain times, the Central African Republic (CAR) adopted Bitcoin as a legal tender marking yet another big step towards a global digital transformation. This initiative will completely transform the CAR's digital infrastructure, which is now considered underdeveloped, by applying the blockchain technological innovation necessary for the project's implementation.”

Authorities in Nepal Label Crypto Activity ‘Unlawful'

Meanwhile in Nepal, regulators have taken a much harsher approach in comparison to the Central African Republic. In recent communications by the Nepal Rastra Bank (NRB), and the Nepal Telecommunications Authority (NTA), it was deemed that cryptocurrency related activity is to be banned within the nations borders – including purchasing/selling digital assets such as Bitcoin.

This decision isn't entirely surprising, as the tiny nation of Nepal remains nestled between China and India – both influential nations with major economies that have each already shown a disdain for non-state run digital assets like Bitcoin.

The NRB and NTA indicate that this stance and resulting decisions were made due to the potential for fraud and anti-money-laundering concerns.

Panama Approves Bill on Treatment of Crypto

For a short period now, many have been eyeing Panama as potentially being the next nation to take a major step towards making Bitcoin legal tender. While this has not occurred, the Panama government did just pass a Bill known as the ‘Panama Crypto Law'.

Under this new ‘Panama Crypto Law', digital assets can now be used freely as a means of payment, with no capital gains tax requirements. Interestingly, and on a promising note, the Panama Crypto Law does not just allow for the aforementioned perks – It extends to include NFTs, and various forms of asset tokenization.

This Bill, which was passed with the goal of making the nation a welcoming one for companies and investors alike to utilize digital assets, did so with a resoundingly positive vote of 40-0. Providing nothing major changes in the near future, it is expected that the Bill will soon become law.

Ransu Salovaara, CEO of Likvidi, states, “The passing of the bill to regulate the use cryptocurrencies in Panama is an interesting development in the global use of crypto. This new bill would allow digital asset companies to be based in Panama – and because it would be classed as a foreign-source income, there would be no capital gains tax…Panama has always been of great importance to trade – and this new bill, although yet to be legislated, would be deeply significant not only for the Panama and the US; but countries that it trades with.”

State of New York Passes Moratorium on PoW Mining

Closing out our look at recent regulatory developments pertaining to digital assets, we look towards the United States New York State Assembly, which has just passed a Bill of its own that will establish a, “…moratorium on cryptocurrency mining operations that use proof-of-work authentication methods to validate blockchain transactions.”

Take note that this is not a ban, but rather a moratorium which will require affected parties to adhere to a temporary set of new restrictions. In this case the Bill stipulates that Proof-of-Work (PoW) miners will be, “…subject to a full generic environmental impact statement review.” Pre-existing mining operations, and those looking to utilize sustainable energy sources are exempt from this requirement.

With Bitcoin popularity on the rise and the mining industry thriving, detractors and enthusiasts alike all recognize that something must be done about the networks environmental impact. With miners incentivized to seek out the cheapest electricity possible, many have turned to coal-based power sources – especially in lesser developed nations without access to hydroelectric dams, solar, wind, or even tidal power. This issue has been such a talking point that it has resulted in the formation of groups like the Bitcoin Mining Council, which is comprised of various influential and like-minded market participants looking to promote a Bitcoins shift towards sustainability.

While this Bill was no doubt founded with the best of intentions, attempting to prevent continued climate change, there are many that believe it will hurt the rapidly evolving digital asset sector within the United States. With the new burden of environmental impact statements being placed upon miners, it is surmised that many may deem the process as too taxing and simply set-up-shop elsewhere.

How Have Markets Reacted?

When looking at the amount of regulatory progress being made surrounding digital assets on a global scale, it would be easy to assume that the sector is thriving, pushing prices to all-time-highs – Unfortunately, this is not currently the case. Yes, there are various promising metrics which point to an obviously bright future – declining exchange reserves, adoption, utility, etc. – the reality is that on-going world events continue to subdue short-term optimism.

Hashrate

Hashrate continues to be a bright spot surrounding the Bitcoin network. All-time-highs are continually being reached, further strengthening what is already the worlds most secure decentralized network.

Source: Blockchain.com

Fear & Greed

If adhering to the old adage ‘be greedy when others are fearful, and fearful when others are greedy', then now might just be the perfect time to ‘stack sats'. Prior to the market decline over the past few months, which has seen Bitcoin drop roughly 40% from its all-time-high, the popular ‘Fear & Greed Index' was routinely posting values indicating ‘extreme greed'. Fast forward to the present, and market uncertainty has now resulted in ‘extreme fear'

Source: Alternative.me

Price Action

So what has this all meant for price action surrounding Bitcoin and the overall market? Lingering sideways movement, after months of steady decline. Looking forward, interested investors want to know – will Bitcoin break upwards as its utility and perception as a hedge against inflation increases? Or will investors continue to define Bitcoin as a risk-on asset, and sell off holdings out of fear stemming from world events? While market participants wait for an answer, the worlds top digital asset remains range-bound between roughly $38,000 and $41,000.