Cryptocurrency and blockchain have taken the world by storm, but navigating the constantly changing policy landscape can be a challenge. From outright bans to cautious acceptance, governments and regulatory bodies have struggled to keep up with this new and rapidly evolving technology. In this article, we’ll take you on a thrilling ride through the history of policy changes related to cryptocurrency and blockchain, exploring how they have affected the market and the exciting developments that lie ahead. Whether you’re a seasoned crypto investor or a curious newcomer, you won’t want to miss this journey through the ever-shifting regulatory landscape.
The Early Years
In the early days of cryptocurrency, there was little in the way of regulation. Bitcoin, the first cryptocurrency, was created in 2009, and for several years it was largely unregulated and largely unknown to most people. However, as the popularity of Bitcoin and other cryptocurrencies grew, governments and regulatory bodies began to take notice.
In 2013, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued guidance that clarified the application of the Bank Secrecy Act (BSA) to virtual currency. The guidance stated that virtual currency exchanges and administrators were considered “money services businesses” and were therefore subject to the same anti-money laundering (AML) and know-your-customer (KYC) regulations as traditional financial institutions.
In 2014, the Internal Revenue Service (IRS) issued guidance on the tax treatment of virtual currencies. The guidance stated that virtual currencies were to be treated as property for tax purposes, which meant that gains or losses from the sale or exchange of virtual currencies were subject to capital gains tax.
In September 2017, the Chinese government announced a ban on initial coin offerings (ICOs), which are a way for companies to raise funds by selling digital tokens. The ban was part of a wider crackdown on cryptocurrency trading in China, which included the closure of cryptocurrency exchanges and restrictions on access to foreign cryptocurrency exchanges.
The Chinese government cited concerns over fraud and financial instability as the reasons for the crackdown. The move had a significant impact on the cryptocurrency market, with the price of Bitcoin and other cryptocurrencies falling sharply in the wake of the announcement.
India’s Ban and Reversal
In April 2018, the Reserve Bank of India (RBI) issued a directive that prohibited banks and other regulated entities from providing services to individuals or businesses dealing in cryptocurrencies. The ban was intended to curb the use of cryptocurrencies for illegal activities such as money laundering and terrorism financing.
The ban had a major impact on the cryptocurrency market in India, with several cryptocurrency exchanges shutting down or relocating to other countries. However, the ban was challenged in court by several cryptocurrency exchanges, and in March 2020 the Supreme Court of India overturned the ban, ruling that it was unconstitutional.
US SEC Crackdown on ICOs
In 2017 and 2018, the US Securities and Exchange Commission (SEC) began cracking down on ICOs, arguing that many of them were in fact securities offerings and therefore subject to securities laws. The SEC argued that many ICOs were simply a way for companies to raise funds without complying with the rigorous regulatory requirements that apply to traditional securities offerings.
The SEC issued a series of cease-and-desist orders against ICOs, and also issued guidance on how ICOs should be evaluated under securities laws. The crackdown had a significant impact on the ICO market, with many companies deciding not to pursue ICOs as a fundraising method.
Facebook’s Libra and the Rise of Stablecoins
In June 2019, Facebook announced its plans to launch a new cryptocurrency called Libra. Libra was designed to be a stablecoin, which is a type of cryptocurrency that is pegged to a stable asset such as a fiat currency or a commodity. The idea was that Libra would be less volatile than other cryptocurrencies, and therefore more appealing to mainstream consumers.
However, the announcement of Libra was met with significant pushback from regulators and governments around the world. Many argued that Libra posed a threat to financial stability and could be used for illegal activities such as money laundering and terrorism financing.
In response to the backlash, Facebook made several changes to its plans for Libra, including changing the name to Diem and shifting its focus to offering stablecoins backed by individual fiat currencies rather than a basket of currencies.
The rise of stablecoins more broadly has also led to increased regulatory scrutiny. In December 2020, the US Treasury Department proposed a new rule that would require cryptocurrency exchanges and other virtual asset service providers to verify the identity of customers who transfer more than $3,000 in cryptocurrency in a day.
Impact on the Market
The impact of policy changes on the cryptocurrency and blockchain markets has been significant. Bans on ICOs and cryptocurrency trading in China, India, and other countries have led to a significant decrease in trading volume and market activity.
However, there have also been positive developments, such as the overturning of India’s cryptocurrency ban and the increasing acceptance of cryptocurrency by mainstream financial institutions.
In the US, the crackdown on ICOs has led to a shift towards other forms of fundraising, such as security token offerings (STOs), which are subject to securities laws. The rise of stablecoins has also led to increased interest from traditional financial institutions, with several banks now exploring the use of stablecoins for cross-border payments and other applications.
Overall, the policy landscape for cryptocurrency and blockchain is complex and constantly evolving. While some governments and regulatory bodies have taken a cautious approach, others have been more open to innovation and experimentation. The future of cryptocurrency and blockchain will likely be shaped by the interplay between policy changes, technological developments, and market forces.
The history of policy changes related to cryptocurrency and blockchain is a fascinating and complex topic. From the early days of unregulated trading to the current landscape of patchwork regulations and bans, the policy environment for cryptocurrency and blockchain has evolved rapidly. The impact of these changes on the market has been significant, with some policies leading to decreases in trading volume and market activity, while others have opened up new opportunities for innovation and growth. As the cryptocurrency and blockchain markets continue to evolve, it will be interesting to see how governments and regulatory bodies respond, and how these policies shape the future of this exciting and rapidly evolving technology.