Law and Cryptocurrency Across International Markets: An Overview
Beginning in 2008 with the formation of Bitcoin, the cryptocurrency market has slowly taken the world by storm. Initially entirely unregulated, these currencies like Ethereum and Bitcoin offered ICOs much like securities’ IPOs with no legislation involved, leading to a prevalence of scamming and fraud. Alongside this rise has come the DeFi movement, arguing for decentralized finance internationally. This mediates any involvement from banks, brokerages, or exchanges when exchanging public currency, thus removing any barrier for potential fraud. Much of the rave of these currencies is the low barrier of entry. Using any cell phone and a Wifi connection, one can participate in global markets, even in areas devoid of central banking organizations. Much of this rhetoric also espouses cryptocurrency as a budding uniform international currency, in hopes to promote competition and inclusion in markets worldwide. As cryptocurrency synthesizes with modern international markets, different countries have passed conflicting legislation surrounding cryptocurrency. Countries such as Argentina or Singapore have emerged as very pro-Crypto, a key part of Trump’s rhetoric, while others like China ban it entirely. Many economic scholars argue for global, uniform regulation of these currencies internationally, without feeling the need for standardization intranationally. This rise brings about quandaries within modern securities laws, especially when dealing with international markets. Analyzing and comparing some different approaches to crypto legislation says much about international securities regulation.
The US has adopted a patchwork approach to handling crypto, with different agencies tackling it in different ways. The SEC (Securities and Exchange Commission) essentially treats crypto as securities, throwing the entire market under its jurisdiction. This has prompted current suits against Coinbase and Ripple (US crypto trading applications) for faulty disclosure and registration of securities, pursuant to Section 5 of the Securities Act of 1933. Likewise, the CFTC (Commodity Futures Trading Commission) treats cryptocurrencies like commodities, regulating its derivatives market. This includes futures and other options, which is standard for securities across the US. Additionally, the IRS even treats cryptocurrency as taxable property, requiring one to report earnings, losses and current holdings. Much of this approach has taken place in the last three years, after landmarks in the field like the Bankman-Fried fueled farce that was the FTX scandal. The US is relatively unorganized in their approach comparatively, which provides for a lot of confusion among consumers. Many of these regulations have arised through court cases rather than outright legislation, paving the way for change to precedent over time. The fragmented nature of these agencies leave many businesses and individuals unsure and skeptical about the market in the wake of the numerous scandals and ongoing cases.
Looking across the pond, the European Union has adopted a standardized set of legislation called MiCA (Markets in Crypto-Assets). Fully established in 2023, this system requires trading platforms to be licensed to sell crypto in the EU, as well as have reserves for stablecoins that are “volatile” or “have a high degree of financial instability.” Similar to the US, the EU requires all ICOs to be registered with the MiCA the same as IPOs, but crypto is not in any way treated like a security outside of that. The standardized system provides clarity and transparency across trading platforms for consumers, and is centralized in a way where fraud is less likely to happen (but still does). The model promotes innovation in a way that the US model does not, and is a model of progressive, uniform legislation on cryptocurrencies internationally.
On the opposite end of the spectrum lies China. China has banned all crypto-related activities in the private sector, leaving the online digital currency as the digital Yuan. This is backed by the state and issued by the People’s Bank of China. Chinese citizens are likewise banned from trading crypto in international markets, mining cryptocurrency, or performing any sort of ICO. Chinese banks are not allowed to include any sort of crypto-related service in their portfolios. What this ultimately does is give the Chinese government the ability to oversee all digital transactions within China as a political mechanism, ensuring the stability and power of the digital Yuan. By making violations of this policy criminally liable, the Chinese government ensures compliance and control.
Looking at these three countries offers a good sense of the national spectrum of crypto legislation. These regulations in America have formed through case law while in the EU, they are products of centralized legislation. The Chinese model is one that is top-heavy and based in financial control, rather than generated by organic legislation or a series of cases. The implications of these rules in time is the future of decentralized finance. Will its goals of inclusivity and uniformity ever be achieved? In a place like the EU, this goal has manifested itself paradoxically with the help of compassionate legislation. Within the US, the barrier to entry is still high, and fraud and misinformation still rampant due to the lack of structure. In China, this goal is only realized in a way that further perpetuates the CCP’s political chokehold. There will be no other alternative to cryptocurrencies in such a tightly governed region at the moment. Such a diverse and growing field is very exciting for the legal profession, and cryptocurrency regulation should dictate the future of international markets moving forward.
