How the World is Coming to Terms with Crypto Assets

March 1, 2019

The United Kingdom’s financial regulator released its “Guidance on Cryptoassets” last month, as part of ongoing efforts to establish a definitive framework for regulating cryptocurrencies. As this is just one of the many ways in which major crypto markets are attempting to keep pace in tackling digital assets, it becomes necessary to review the ways in which other countries are approaching the issue.

United Kingdom

As indicated by the document released by Britain’s Financial Conduct Authority (FCA), the U.K. appears to be opting to take a more neutral stance with crypto assets, with the paper’s main aim being to provide clarity for cryptomarkets.  This way, participants understand what regulations apply to their businesses and whether they require authorization from the FCA, as well as which crypto assets fall within regulatory rules or guidelines.

The FCA has established a range of applicable laws and definitions for digital assets, with the possibility for them to be regarded as “Specified Investments” under “Financial Instruments” or the Regulated Activities Order (RAO).  Additionally, the agency noted that regulations pertaining to payment services and e-money could apply to crypto assets.

The document goes on to divide cryptocurrencies into three possible classifications comprising exchange tokens, utility tokens, and security tokens, with exchange tokens such as Bitcoin and Litecoin intended as a means of exchange and “not issued or backed by any central authority.” The financial authority noted that such assets can be used for purchasing and selling goods and services without the need for banks or other conventional intermediaries.

Meanwhile, security tokens referred to those assets which are the same as or similar to shares, uncertified loan certificates issued by companies, or “units in a collective investment scheme,” with the FCA specifying that these tokens probably fall under RAO, and are therefore within the regulator’s scope of authority. While the agency did not cite specific examples of what it considered security tokens, it did mention social trading platforms, such as the CD Platform, whereby users gain exchange tokens through the trading of fiat currencies.  The FCA said CD Tokens, which are exchanged for fiat currencies and used to purchase other exchange tokens, might be classified as security tokens given that they “confer on the holder a right of ownership of the CD Platform.”

Lastly, utility tokens grant users access to products but without the same rights as security tokens, and are therefore beyond the purview of the regulatory regime except when they can be categorized as e-money.

Citing data from the U.K. Cryptoassets Taskforce, the regulator indicated that the United Kingdom accommodates fewer than 15 crypto spot exchanges, with a total daily trading volume of around 200 million US dollars and accounting for about 1% of all global crypto trade on a daily basis. In Britain, there are currently only 56 projects which have held initial coin offerings (ICOs), amounting to 5 percent of the global total. In spite of its relatively small size, the local crypto industry has come under increasingly intense scrutiny from local regulators, with the FCA announcing in December 2018 that it has been investigating at many as 18 companies over their use of digital currencies. Additionally, the U.K. tax service detailed tax legislation for private cryptocurrency holders while the financial authority has asked the British public to weigh in on its consultation paper, with the finalized version expected to be presented this year.   

As a result, Britain may soon join a growing roster of nations adopting a definite regulatory approach toward crypto assets to varying degrees and in unique ways according to their specific circumstances and the overall state of their crypto markets.

United States

Although the U.S. Congress holds the most sway over federal regulatory agencies in the United States, including Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), it has remained mostly silent on matters concerning cryptocurrencies, including regulation.

Various regulatory bodies have nevertheless taken up the issue, with each agency having its own way of defining cryptocurrencies.  The SEC, which oversees securities transactions, regards tokens as securities for the most part, using the Howey Test to determine the extent of its jurisdiction. Securities involve financial investment in a common enterprise, with investors expecting profits mainly from the efforts of others. The SEC has however ruled that virtual currencies such as Bitcoin and Ethereum are not securities, and so their ICOs are not subject to reassessment by the commission, which has been conducting a sweeping probe and clamping down on what it considers unregistered securities.

Meanwhile, the CFTC, which regulates commodity derivatives transactions, regards crypto as commodities owing to its understanding that Bitcoin has more in common with gold than with conventional securities or commodities, due to the fact that it does not have attached liabilities and is not backed by the federal government.

For the Financial Crimes Enforcement Network, which has complete authority on Know Your Consumer and Anti-Money Laundering matters, tokens are viewed as money, and ICO sales must abide by money transmitter rules as stipulated by the Bank Secrecy Act. ICOs are therefore required to register with the federal government, collect consumer data, and report suspicious financial activities.

Finally, the Internal Revenue Service considers cryptocurrencies to be properties rather than currencies, which means capital gains taxes are levied whenever crypto assets are sold.

The complicated and at times convoluted supervisory situation in the United States could however see changes in the future, with the introduction of a bipartisan bill as recently as December 2018, known as the Token Taxonomy Act, intended to provide greater clarity on matters involving ICO registration and taxation, while also preventing over-regulation in the domestic crypto market.


Despite having played a massive role in cryptomarkets — at one point hosting up to 50 to 70% of Bitcoin mining operations and a significant share of the overall trading volume — China has since seen government crackdowns on local exchanges and ICOs that have suppressed figures on both fronts, having closed 85 ICOs and 90 different crypto exchanges over the last months. The government has since extended this ban to more than 100 international exchanges that served the Chinese market.  

In the wake of a wave of repressive regulatory measures in 2017 that were implemented to curb crypto markets, people in China can still hold crypto assets, but have no legal means by which to exchange them for fiat currencies. As expected, cryptocurrencies are not recognized by domestic regulators as legal tender or tools for retail payments and neither are Chinese banks accepting any crypto assets.  

Still, the country has not entirely abandoned crypto and has in fact become especially bullish regarding blockchain technology, having gone so far as to add it to the state’s roadmap for national development from 2016 to 2020.  Indeed, “Blockchain before Bitcoin” has become a defining strategy in China with regard to the space, with the difference in approaches taken by the Chinese government on matters of open versus closed ledgers effectively serving as a case of contrasts.

It is necessary to stress that this is not the first time China has adapted breakthrough technology for its own market, with tech firms such as Alibaba and Tencent greatly owing their current state of existence to protections provided by China’s “Great Internet Firewall” and regulatory policies that have effectively kept Western companies such as Twitter and Facebook from entering the Chinese market. The Chinese firms also have close ties to Beijing and cooperate with internet monitors, demonstrating that success and censorship are not necessarily mutually exclusive.

Nevertheless, China may face challenges ahead, as blockchain technology is naturally distributed, which can pose a significant complicating factor. Additionally, the Chinese government has never before had to deal with crypto assets which cannot be banned or sanctioned without blocking the internet as a whole. Monetary policy plays a major role in the country’s economic planning, and if cryptocurrencies and other digital assets were to gain widespread acceptance as a means of exchange, that may limit the ability of domestic regulators to maintain direct control and dictate terms.


As one of the largest markets in the world for cryptocurrencies, Japan has around 3.5 million crypto traders conducting over 97 billion US dollars in transactions a year, according to the country’s chief financial regulator the Financial Services Agency (FSA).  Most of these traders are reported to be businessmen in their late 20s or early 30s, with 14% of the nation’s young male workforce having invested in crypto assets. Owing to the considerable size of Japan’s crypto industry, the domestic regulator has been particularly active, with the market itself having a notable reputation for being among the most compliant and regulation-oriented in the world.  

The Japanese government was also among the first to recognize Bitcoin, having legally accepted the cryptocurrency – together with other digital coins – as a form of payment since May 2016, though still not defining it as legal tender. The local Payment Services Act came into effect in April 2017 and confirmed the role of cryptocurrencies as a means of payment, while outlining additional regulatory measures for ICOs and local crypto exchanges.

Local media reports indicated that the FSA resolved to categorize Bitcoin and other cryptocurrencies under the single classification of  “crypto-assets” in December 2018. This was allegedly due to concerns that traders may have been misled into believing that cryptocurrencies were recognized as legal tender by the government, due to being called “virtual currencies.”


Germany still does not regard crypto assets as legal tender, though the German Finance Ministry has recognized them as “private money” since 2013. Any profit made through mining, trading or exchanging Bitcoin or other cryptocurrencies is therefore subject to a capital gains tax.  Nevertheless, the German Income Tax Act stipulates that cryptos become tax exempt if they are held for over a year.

Digital assets are also fairly popular among young adults in Germany, with a November poll conducted last year by the German Consumer Centers of Hesse and Saxony finding that over a fourth of Germans between the ages of 18 and 29 have expressed interest in purchasing cryptocurrencies.

The German Federal Financial Supervisory Authority has however been notably aggressive regarding ICOs, advising private investors to avoid them and reporting on unauthorized offerings, while also calling for the sector to come under greater international scrutiny.


In the first regulatory move of its kind in Italy, an Italian Senate committee on January 23rd greenlighted an amendment pertaining to the blockchain sector that provided basic industry terms, including DLT-based technologies and smart contract definitions, in a move that effectively put the European country on the map for blockchain-oriented nations.

According to the amendment, which still requires further approval from various authorities including the nation’s parliament, a blockchain-powered digital data record will also allow a legal validation of documents at the time of registration.

Regarding cryptocurrencies in particular, there is as yet no established regulatory framework in Italy, but work is underway by the country’s Treasury Department of the Ministry of Economy and Finance to introduce a bill which aims to more clearly define the use of digital assets in Italy. It should be noted that the decree is set to define how and when crypto service providers should report their activities to the government, which suggests a rather aggressive regulatory framework on the horizon.

South Korea

Since 2017, South Korea has been at the forefront of the crypto industry, with the local exchange market processing over 14% of the global Bitcoin trade volume in July of that year, making it the No. 3 market after the United States and Japan. The country’s financial regulator was quick to act, hitting the domestic crypto sector with a blanket ban on ICOs, similar to what happened in China, only to lift the ban in May 2018. South Korea is also making strides in the field of financial technology and emerging as a hub for international blockchain.

Regulatory measures may soon be catching up with the industry, however, as December 2018 saw as many as six bills introduced by local lawmakers to regulate the crypto sector. The aim of the proposed legislation would be to provide private investors with greater protection, while addressing issues such as those pertaining to how virtual currencies and regulations are defined within the existing legal framework.


Switzerland is famously friendly towards crypto and crypto-related technologies, being home to the “Crypto Valley” asset and blockchain development hub and having just become the location of choice for major Bitcoin wallet Xapo, which recently announced it will be moving its operations out of Hong Kong.

Cryptocurrencies are considered properties in Switzerland, having been classified by the Swiss government as “virtual currencies” and more specifically “digital representation of a value which can be traded on the Internet but not accepted as legal tender anywhere” according to a 2014 report by the Federal Council.


Often referred to as the “Blockchain Island” under implementation of its Blockchain Strategy, Malta has been a haven for foreign crypto markets due to the nation’s crypto-friendly laws, which have allowed exchanges such as Okex, Binance and Bitpay to set up operations.

Malta’s parliament approved and enacted three bills in 2018 related to Distributed Ledger Technology (DLT), namely the Digital Innovation Authority Act, the Innovative Technological Arrangement and Services Act, and the Virtual Financial Asset Act.

Silvio Schembri, Junior Minister for Financial Services, Digital Economy and Innovation within the office of the Prime Minister of Malta, claimed on Twitter that the island nation had become “the first world jurisdiction” in providing legal certainty to the crypto space.

Under the Virtual Financial Asset Act, cryptocurrencies have been officially classified as Virtual Financial Assets (VFA), with crypto exchanges being referred to as VFA exchanges and ICOs being renamed VFA offerings, perhaps to distance the medium as a whole from the stigmatized connotations sometimes associated with terms like “cryptocurrencies.”

VFA itself is defined as any type of “digital medium recordation” used as a digital medium of exchange, unit of account, or store of value, but is nevertheless “not electronic money, a financial instrument, or a virtual token.”  Utilization of virtual tokens is meanwhile only permitted on “the DLT platform on which it was issued,” with the redemption of funds only available “on such platform directly by the issuer of such DLT asset.”


Malaysia has recently become the latest country to roll out crypto regulations, classifying crypto assets as securities as of January 15th and placing them firmly under the oversight of the domestic securities watchdog. Any exchanges and ICOs operating without the approval of the Malaysian Securities Commission could face up to 2.4 million US dollars in fines and a 10-year jail sentence.

The measures do however have a positive side, as the government sees potential for blockchain and virtual currencies to enhance the Malaysian economy, with Finance Minister Lim Guan Eng saying his ministry views digital assets and underlying blockchain technologies as having the potential to bring about innovation in industries both new and old. It especially sees digital assets as potentially serving as an alternative asset class for investors, as well as a means of alternative fundraising for new businesses and entrepreneurs.


The crypto market in Singapore has been massive, with both Upbit – South Korea’s largest exchange – and China’s Binance last year announcing expansions into the city-state’s domestic market. The Monetary Authority of Singapore (MAS) has meanwhile brought certain digital assets under its purview by broadening existing regulatory policies.

According to a mandatory licensing measure introduced by the central bank, payment service providers must now apply for one of three licenses depending on the nature and scale of their activities. The MAS has clarified, however, that cryptocurrencies are not considered legal tender and they remain unregulated by the body.


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