Supervision of the Global Crypto Situation

This article is an original Web3 annual review by Coinlive and Huobi; please cite the source if you intend to reproduce the content.

1) The overall situation of crypto supervision globally

In 2022, there are over 42 other sovereign countries and regions, excluding China that has implemented 105 regulatory measures and guidelines regarding the crypto industry.

In terms of the regions, the United States (US), the European Union (EU), and South Korea have implemented more concentrated and consolidated regulations.

The US remains as the one having the most eyes on them, totalling 22 regulatory policies in place with other federations and states. The policies mainly include cryptocurrency exchanges, guidelines on crypto regulations, judicial decisions, stablecoins and more. The EU has 9 laws. The regulatory policies are mainly about the crypto regulatory guidelines, stablecoins, anti-money laundering and such that involves the Markets in Crypto-assets rules (MiCA) and Transfer of Funds Regulation (TFR) bills. For South Korea, they have 8 related regulations, mainly covering judicial decisions, stablecoins, crypto regulatory guidelines, cryptocurrency exchanges and more.

In 2022, the proportion of the global crypto industry’s aggressive, neutral and passive policies are 36%, 57% and 7% respectively. Compared to 2021’s proportion of 23%, 59% and 18%, there is a stark increase in the proportion of aggressive regulatory policies. Conversely, the passive regulatory policies have greatly decreased in ratio as well. Evidently, the regulatory policies are generally going in a positive direction.

To categorise the different crypto fields, it totals 12 directions, including crypto regulatory guidelines, cryptocurrency exchanges, stablecoins, DAOs, NFTs and more. Crypto regulatory guidelines, cryptocurrency exchanges and stablecoins make up the top 3 policies at 62% in total.

2) Adjustment of important crypto regulatory frameworks

EU Regulatory Framework

On 10 October 2022, the EU preliminarily passed the MiCA and TFR bills. Both regulations will come into effect in 2024.

MiCA: Other than unifying the regulation anti-money laundering, the EU does not have a clear crypto regulatory framework. Once MiCA is passed and implemented, it will apply to the entire EU, and also surpassing the legislations of the member states. MiCA will grant each state’s authority power to enforce the law. According to whether or not crypto assets require the anchoring of the value of other assets, MiCA has categorised crypto assets into electronic money tokens or e-money tokens (EMT), asset-referenced tokens (ART) and other crypto assets. MiCA has capped the daily transactional amount and trading volume of stablecoins that are not pegged to the pound at 1 million transactions and 200 million pounds. Currently, the 3 biggest stablecoins, USDT, USDC and BUDS take up over 75% of the trading volume of cryptocurrency exchanges. On average, their daily transactional amount and trading volume has significantly exceeded MiCA’s stipulated limit. Should the EU choose to implement policies on stablecoins not pegged to the pound in the future, it might impede the competitiveness and innovative potential of the EU’s crypto industry.

TFR: EU citizens have mixed reactions towrads the new anti-money laundering bill, TFR. Supporters believe that this will aid in clearly drawing boundaries for regulations, and accelerating the pace of regulating crypto assets. On the opposition, they believe that TFR violates the EU Charter of Fundamental Rights. Collecting personal data may not necessarily help in the fight against money laundering.

The US’ Regulatory Framework

The US’s regulatory framework came out later than the EU’s, having only released their draft of the cryptocurrency industry’s regulatory framework on 16 September 2022. The framework complies with the Executive Order (EO) on Ensuring Responsible Development of Digital Assets signed by President Joe Biden in March. Its main goal includes implementing measures to protect consumers, maintain financial stability, preventing illegal use of cryptocurrencies, maintaining the leadership status of America in the global financial sector, as well as responsible technological innovation and more.

Hong Kong’s Announcement of Virtual Assets

On 31 October 2022, Hong Kong’s financial secretary officially announced its Policy Statement on Development of Virtual Assets. With that, Hong Kong has made a crucial step towards being the world’s crypto hub. In the announcement, it states that Hong Kong is an international financial centre, keeping an open attitude and embracing innovators doing virtual assets worldwide. While Hong Kong is stepping up preparatory efforts for its licensing regime for new virtual-asset service providers, they are also willing to reach out to the virtual assets industry globally by inviting relevant exchanges to explore business opportunities in Hong Kong. Under the new licensing regime, the Securities and Futures Commission (SFC) will launch public consultations for retail investors on how appropriate virtual assets trading is. The government remains welcoming towards virtual assets exchanges buying and selling exchange-traded funds (ETF) in Hong Kong. Regarding future reviews of property rights of tokenised assets and the legitimacy of smart contracts, the government stays open-minded. In the announcement, the Hong Kong government also mentioned 3 pilot projects that they are currently exploring.

3) The developmental trends of regulatory policies worldwide

Trend 1: Treating the regulating of on-chain protocols as the new normal

Tornado cash got sanctioned by the US Treasury and CFTC lodged a complaint towards Ooki DAO’s members. From the outcome and impacts of these incidents, the US Treasury’s sanctions has indeed negatively impacted the number of users on Tornado Cash. However, as Tornado Cash is a decentralised application deployed on Ethereum, it has not ceased operations and is currently still operating on the network. Impacted by this incident, some DeFi protocols and founders are starting to worry for their safety and their business compliance. Ooki DAO’s members being fined US$250,000 is the precedent for regulatory institutions penalising DAOs. If DAOs does something that they are responsible for, the relevant authorities will be held accountable. For multi-signature processes, the signer may be held accountable. Conversely, for on-chain governance, the proposers and voters will be the ones held accountable.

Although crypto communities believe that “Code is law”, the different state governments will not in the long term, tolerate attempts to bypass their laws. Accordingly, under the new normal of such regulations, on-chain protocols will present considerable demand for the compliance market.

Trend 2: Tightening regulations on CEXes and other centralised institutions

Centralised institutions like FTX and 3AC met their downfall, reflecting the lack of existing crypto regulatory measures to some extent. CFTC generally has jurisdiction over their derivatives, while SEC will monitor crypto assets that qualify as securities according to their rules. These two regulatory institutions can also supervise investment companies, but it is evidently insufficient towards FTX and Alameda Research. After the FTX incident, many called upon the US to strengthen regulations towards crypto assets.

In the coming two years, the EU’s MiCA and TFR regulatory bills will come into effect, the US’s crypto regulatory framework will gradually improve and be legislated, and more countries’ crypto regulatory policies will gradually materialise. Within each country, there will be clear and unified crypto regulatory policies and regulatory cooperations internationally will continue strengthening. This will provide the necessary institutional and enforcement foundation for regulating crypto assets.

Trend 3: Competition between various states to develop crypto assets intensifies

Currently, Singapore is increasingly becoming the place of assembly for crypto assets worldwide. In mid-October, Hong Kong’s financial secretary, Paul Chan Mo-po published an article on “Hong Kong’s Development of Innovation and Technology”. He mentioned that he wishes to “propel Hong Kong’s development to become a global crypto hub”. At the end of October, Hong Kong released a statement on their crypto assets policy. The new Prime Minister of England, Rishi Sunak is an avid fan of crypto assets. He once tweeted that he is working hard towards making England a global crypto hub. Statistics also show that in 2022, the Middle East and Northern Africa are regions that have the fastest growth in the cryptocurrency market. The United Arab Emirates (UAE) adopted regulatory policies that are extremely conducive to constantly attract crypto companies to settle there. In 2022, their cryptocurrency market grew by at least tenfold.

While global economic growth is slowing down, some countries and regions are already choosing to lay out the crypto industry and working hard to compete as the global crypto hub. With competition towards crypto assets, more countries will begin adopting a more amicable attitude towards crypto assets. In turn, this will encourage more innovation in the crypto industry, thereby advancing the constant development of the crypto industry.

Overall, looking at the regulations in the crypto industry worldwide in 2022, it is safe to assume that various state governments are actively establishing and improving their crypto assets regulatory framework and policies. They are working towards catching up to the pace of the development of the crypto industry. This will normalise the crypto asset industry’s development trajectory, helping propel the crypto industry into the next phase of rapid development.

Arranged by: Huobi Research’s “Global Crypto Industry Overview and Trends”