The emergence of a brand new asset class is a once-in-a-generation occurrence. Commodities, private equity, real estate, stocks and bonds have been trading for centuries. This week, Bitcoin was officially added to the list by Goldman Sachs.
Since the emergence of new asset classes is so rare, regulators across the world are simply unprepared for it. Most countries don’t have concrete rules about the tax treatment, estate planning, cross border transfers and fundraising through digital assets. Many can’t even figure out if these digital assets are currency, commodities or property.
Here’s an overview of the ways regulators have attempted to implement rules on crypto assets and decentralized finance in 2021.
Some countries have taken a hostile approach to this asset class. As of 2021, seven nations including Pakistan, Bangladesh, Nepal, Egypt, Algeria, Morocco and Bolivia have blanket bans on cryptocurrencies. This means the buying, selling, trading, custody and mining of any digital asset is considered illegitimate by the state regulators.
These reluctant jurisdictions risk lagging behind the rest of the world as digital assets gain more traction and become mainstream.
Fortunately, the two largest and most critical economies in the world haven’t banned digital assets. However, they haven’t fully embraced this emerging economy either. The United States already taxes cryptocurrency transactions and now wants users to make more disclosures about their activities. Meanwhile, China dominates the critical Bitcoin mining industry, but has made several attempts to crackdown on the sector in recent years. At the time of writing, Bitcoin and other crypto assets are legal in China but regulations remain opaque.
As an emerging superpower, India could be the dark horse in this race. Indian regulators have been considering a ban, but haven’t implemented one yet. However, developers and young investors across the nation have already adopted digital assets in a big way. If India changes its stance on these assets, the geopolitical winds could change swiftly.
Some jurisdictions have fully embraced crypto assets to help attract talent and capital from across the world. When the island nation of Malta introduced clear regulations and standards for digital assets in 2017, it quickly earned the moniker of “Blockchain Island.” Over the years, the country’s favorable regulations have attracted investors and entrepreneurs.
Canada is another crypto-friendly jurisdiction. Last year, the country’s financial regulators approved the listing of several Bitcoin and Ethereum exchange-traded funds. These ETFs are the first of their kind and now trade on the Toronto Stock Exchange.
Much of the European is considered crypto-friendly too. Some of the most prominent crypto projects are based in cities such as Zug, Amsterdam, Prague, Ljubljana, and Vilnius.
The emergence of a new asset class is extremely rare, which is why regulators are not prepared to handle such innovations. This is why crypto regulations are far from universal right now. Some countries such as Pakistan are outright hostile, while others such as Malta have fully embraced digital assets. However, the largest and most powerful economies have vague rules and unclear regulations that may be holding this industry back, for now.