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Navigating the cryptocurrency maze
How different markets are approaching the growth of digital assets
Darryl Yu 24 Sep 2021

With its market capitalization topping US$2 trillion earlier this year, the cryptocurrency market has been the talk of the town in financial circles. Whether you’re a fan of Bitcoin or XRP, there is little doubt that financial regulators around the world need to tackle and pay attention to digital assets.

This year Bitcoin, the world’s most popular cryptocurrency, has received heightened attention as an alternative source of value from fiat currencies. On September 7, the government of El Salvador became the first country in the world to accept Bitcoin as legal tender. The country currently holds around 700 bitcoins and sees the embrace of cryptocurrencies as a way to smoothen its remittance processes. Currently an estimated US$6 billion or 20% of El Salvador’s economy relies on remittances from about two million Salvadorans living abroad.

Yet, El Salvador remains an outlier when it comes to cryptocurrency acceptance with financial regulators in other parts of the world already taking various approaches in dealing with the digital assets.

The European Union, for example, has proposed several regulatory measures, most notably the Markets in Crypto Assets (MiCA) which looks to regulate stablecoin usage within the bloc. Moreover, issuers of e-money tokens must be authorized as a credit or e-money institution within the region. 

In the United States, Congress introduced the STABLE (Stablecoin Tethering and Bank Licensing Enforcement) Act late last year. The law, if passed, would require issuers and institutions of stablecoin to become licensed members of the Federal Reserve system. 

Asian financial regulators

But unlike in the US and the EU, financial regulators in mainland China have taken a tough stance on cryptocurrency activity. Since 2017, fundraising via initial coin offerings (ICOs) and domestic digital exchanges have been banned. Nevertheless, China remains a hub for Bitcoin mining with an estimated 75% of activities taking place in remote areas such as Inner Mongolia.

China instead has looked to harness the blockchain technology behind cryptocurrencies in the eventual rollout of its own central bank digital currency, otherwise known as the e-CNY.

Its special administrative region Hong Kong has opted for a more liberal approach towards crypto assets with the city’s Securities and Futures Commission (SFC) announcing in November 2020 that it would regulate all cryptocurrency trading platforms active in the financial hub. OSL Digital Securities became the first digital exchange issued a SFC licence.  

Southeast Asian countries like rival Singapore have adopted a comparable licensing mechanism to regulate cryptocurrency activity. The Payment Services Act passed by Singapore’s parliament early this year sets rules on digital payment token service providers operating in the country. While cryptocurrency is legal to hold in Singapore as a property, it cannot be used as legal tender. Binance, one of the world’s largest cryptocurrencies exchanges, was recently in hot water with the Monetary Authority of Singapore after it was reported that the exchange could be breaking Singaporean law for providing payment services to Singapore residents without an appropriate licence. 

Other Southeast Asian countries such as Indonesia, Vietnam, the Philippines and Thailand have also prohibited the use of cryptocurrencies as legal tender in their respective jurisdictions. Thailand has gone a step further by banning the trading of digital assets such as non-fungible tokens (NFTs).

Yet, Thai authorities have been quite progressive when it comes to ICO listing, approving this year an ICO worth 2.4 billion baht (US$71.7 million) using real estate-backed security tokens. Starting in September 2021, the Thai Anti-Money Laundering Office now requires digital asset exchanges to verify customer identity via a dip-chip machine.  

While various approaches have been adopted in dealing with cryptocurrencies, it is important to remember that not every jurisdiction needs to have the same response. What is crucial is that financial regulators understand why different standards are being taken and the basis for comparing the different standards.  

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