July 24, 2024

As the phenomenon of cryptocurrency assets and the nascent industry that has emerged along with them continues to grow at an accelerating speed, global regulators are scrambling to set the rules on how digital currencies should behave. This is our take on some of the main trends emerging from those efforts.

Regulators will need to decide whether the crypto regulator of tomorrow will evolve from standards for existing regulated entities, or if it will be designed specifically for crypto assets. How the future crypto regulator takes shape will determine its efficacy.

Developing Countries

Alongside crypto investments, regulatory agencies have formulated safety-net frameworks aimed at protecting consumers and boosting financial stability. But under-regulation risks hamper financial inclusiveness and entrepreneurship, and over-regulation cripples innovation, so we need a new regulatory paradigm that mediates risk and reward, and we need to establish it quickly.

Things are more complicated for developing countries, which have been plagued historically with hyperinflation, widespread corruption and without systems of global finance. Cryptocurrencies would ensure both more independence in terms of finance while dampening the effect of economic volatility.

Hence, regulators in emerging markets are playing catch up on cryptocurrency. The analysis below provides an overview of the stand of crypto regulations around the world, with a special focus on the scope of taxation policies, the countering of money laundering/terror financing regulations, consumer protection rules and licence requirements. Roll over a country in the map to get to see its status; 32 have legalised cryptocurrency, 19 have crypto prohibited (generally banned), 10 have general policies of prohibition; this map will be updated periodically as new policies play out.

Emerging Markets

As cryptocurrency has rocketed from niche investment to one of the largest asset classes in a matter of months, countries have scrambled to decide how best to regulate it, some taking a hands-off approach, some setting up regulatory frameworks to shield investors and end-users.

However, to take full advantage of their potential as avenues for financial inclusion, regulators must find the golden mean in their treatment of cryptographic currencies in order to mitigate the risk of both cyberattacks and money laundering and tax evasion, while also avoiding overregulation that could curb innovation and economic development, as well as underregulation that exposes investors to greater risk and leads to an unequal stance for regulators who are unequipped to respond when problems arise.

While many countries in the emerging markets and the global south are lagging behind with regulatory developments, some countries have addressed some of the main issues. For example, Dubai has created a well-structured regulatory regime that welcomes crypto-native firms by allowing them to base their operations there and applying high standards of investor protections and cybersecurity protections for the benefit of the industry, which makes the UAE a global hub of blockchain and crypto innovation.

Middle East

In the Middle East, regulation has generally been limited, but this changed significantly this year as two different laws were promulgated: both Bahrain and the UAE established clear rules to regulate virtual assets and provide the basis for future growth in the sector across the region. UAE’s central bank also issued guidelines for financial institutions on anti-money laundering and counter-terrorism financing for virtual currencies activities.

UAE regulators have also encouraged the development of stablecoins, guaranteeing market actors regulatory certainty on their offerings. As such, what is likely to be a stablecoin backed by dirhams will be launched by the end of 2023.

As part of its de-oilisation drive aimed at encouraging technology and finance to replace oil as engines of the economy, the UAE started to build an attractive yet adaptable regulatory environment to lure foreign businesses to its region. Dubai provided international businesses with a framework for the use of crypto-assets through its Virtual Asset Regulatory Authority (VARA), while Ras Al Khaimah established a Digital Oasis in an effort to bolster the growth of the digital economy, which has been an important part of the UAE’s goal to digitise the economy entirely by 2031.

Africa

On one side, global markets aredoors open to cryptos. On the other, some African countries are imposing strict regulations. South Africa, for example, recently reclassified cryptocurrency as a financial product accompanied by a licensing and trading framework. Supportive regulation is also happening in Kenya and Mauritius.

While in Sub-Saharan African exchanges, business maybe partly driven by remitting money back to the home country for family and friends (group A, which is retail-sized transfer accounting for a large portion of the total transaction volume in this region).

Educating people in their local languages is a step forward as far as currencies such as HUB2 are concerned However, much more needs to be done, both in terms of demographics – crypto literacy could be improved for some elderly populations, or in rural areas – and in language terms: I’ve already mentioned that attempts to translate into Kiswahili should continue. Another friction point is regulation: this remains murky for HUB2, which has to cross more than 20 jurisdictions around the world.

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