Cryptocurrency is increasingly drawing scrutiny from regulators all over the world who are seeking to prevent its abuse and fight bitcoin scams. That was the historic message the chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, delivered in remarks on August 3, 2021.  

Noting that crypto has been rife with “fraud, scams, and abuse” and “more like the Wild West,” Gensler expressed particular concern with the projected growth of stablecoins, cryptocurrencies pegged to the value of fiat currencies like the dollar. “The use of stablecoins on these platforms may facilitate those seeking to sidestep a host of public policy goals connected to our traditional banking and financial system: anti-money-laundering, tax compliance, sanctions, and the like,” he said. And therefore, he promised that the SEC “will continue to take our authorities as far as they go” while appealing to Congress to increase its authority accordingly. 

Will cryptocurrency be regulated to prevent bitcoin scams? It sounds like that is the direction in which the SEC is headed. If and when it is, bitcoin recovery and all other crypto recovery will become a much simpler process than it is today.

Which Countries Are Moving Towards Crypto Fraud Regulation?

It is clear that the SEC (among other U.S. government agencies) is interested in some form of crypto fraud regulation. Previously, the SEC made crypto news when it argued that an Initial Coin Offering (ICO) may meet its definition of security for regulatory purposes. SEC crypto fraud regulation of ICOs would certainly help reduce the amount and threat of bitcoin scams and other crypto scams since the overwhelming majority of ICOs are phony.

In Europe as well, regulation is creeping into the cryptoverse. The initial move was made in January 2021 by the British financial regulator, the Financial Conduct Authority (FCA), when it required all firms offering cryptocurrency-related services to register and prove that they are in compliance with anti-money laundering legislation. 

Then, in April, Germany’s financial regulator, the Federal Financial Supervisory Authority (known as BaFin), notified Binance, the world’s most prominent crypto exchange, that it could be fined for offering securities-tracking digital tokens denominated in its own cryptocurrency without publishing an investor prospectus. Binance was risking a fine of €5 million (equivalent to about $6 million) or 3% of its 2020 turnover.

A watershed moment came on June 26 when the British regulatorwarned Binance that its UK entity “must not, without the prior written consent of the FCA, carry out any regulated activities” (i.e., cryptocurrency derivatives). However, there’s a loophole. Binance can still offer non-regulated services (i.e., crypto) to UK residents via its website. The nuance demonstrates that while regulation is creeping into the system, it is doing so in a methodical fashion. 

The same month, Japan’s regulator, the Financial Services Agency,declared that Binance was operating in that country illegally for similar reasons.

Is Cryptocurrency Already Being Regulated?

Today, every country enacts its own laws and regulations, and that applies to crypto as well. So, it’s important to consider: Is cryptocurrency legal everywhere?  

The answer is “no.” Algeria, Bolivia, Egypt, Morocco, and Nepal have banned it completely. Bangladesh has effectively prohibited the use of crypto as well, although it remains legal to hold it. Other countries ban or discourage it solely for bank transactions. These include Cambodia, Canada, China, Colombia, Ecuador, Iran, Jordan, Nigeria, Russia, Saudi Arabia, and Qatar. Indonesia and Vietnam technically allow their citizens to acquire and trade cryptocurrency but prohibit them from using it as a means of payment. Turkey prohibits it for both banks and payments. 

Restrictions and prohibitions are, in effect, forms of regulation. To a certain extent, regulation has already entered the world of cryptocurrency via the back door. 

On the other side of the (digital) coin, El Salvador made crypto news when it became the first country in the world to make bitcoin legal tender. As such, it is now regulated there by law. The same idea is now being touted by politicians in countries such as Argentina, Brazil, Panama, and Paraguay. Outside of Latin America, all eyes are on Malta. Once a critical mass of countries adopts bitcoin (or any other digital coin) as legal tender, other countries that trade with them will be obliged to regulate it in one form or another. 

Geologists tell us that the earth’s tectonic plates shift the average continent about one foot (30 centimeters) every decade. But that’s not something we can readily see. Will cryptocurrency be regulated? If so, will crypto fraud regulations significantly reduce the number of bitcoin scams and crypto scams? Cryptocurrency’s tectonic plates are shifting much faster than the earth’s and the results are becoming evident.