Chainalysis recently released a report that showcases the booming state of crypto across the globe. Digital currencies such as Bitcoin have become a genuinely global feature, allowing companies and individuals to make fast, cost-efficient transactions across the world. Peer-to-Peer trading has primarily fueled crypto adoption, allowing the most underbanked communities to access financial services. Moreover, flawed monitory policies from most governments have driven many people to Bitcoin as an inflation hedge.
Unfortunately, the surging popularity of crypto assets has attracted greater regulatory scrutiny from financial watchdogs — with lawmakers appearing divided on how to best respond to the crypto phenomenon.
Regulators often point to the growing number of scammers who target crypto traders and investors when calling for more stringent regulation. Some countries have even gone as far as to consider a total ban on bitcoin to crackdown on crypto-related crime.
However, Chainalysis recently debunked the notion that BTC is used primarily for criminal activity. The blockchain analytics firm also confirmed in their latest report that the number of folks falling for crypto scams remains relatively low.
UK FCA Cracks The Whip on Cryptocurrency Businesses
The UK Financial Conduct Authority (FCA) is the latest government agency to crack down on crypto-related businesses. On Sep 28, the watchdog issued several warnings over an unauthorized crypto firm Cryptenix that allegedly solicited customers in the UK jurisdiction.
The FCA warning comes just weeks after UK lawmakers proposed bringing the promotion of crypto into the scope of the FCA’s current oversight.
In 2019, the FCA had issued similar warnings to the public about a crypto investment clone firm First BTC FX. The financial regulator had also issued a stern warning against a speculative craze over initial coin offerings (ICOs) in 2017.
Lawmakers Harbor Deep-Seated Fears About Crypto
Despite the increasing crypto adoption in most countries, regulators remain skeptical of their role in the modern financial system.
Some officials state that crypto could threaten the sovereignty of government-issued fiat currencies. Others believe that normalizing cryptocurrencies will open the flood gates to illicit activities such as money laundering and drug trafficking.
As crypto continues to gain more traction, financial watchdogs have ramped up efforts to create framework proposals for taxation and regulation of the asset class.
For instance, the IRS now requires all US citizens to declare whether they had dealings with crypto assets on their annual tax form. The agency has also subpoenaed lists of crypto owners from top exchanges in a move that could deter many from using crypto.
Bithumb, the largest South Korean exchange, recently decided to sell 74% of its stake in Bithumb Korea following multiple police raids. The crypto firm is currently under investigation from South Korea’s financial watchdog under the suspicion of tax evasion.
According to Marius Reitz, Luno’s general manager for Africa, such heavy-handed approaches to crypto regulation threaten to stifle the nascent crypto industry.“It can be very easy for regulators to want to regulate the entire industry from the onset but it could stifle innovation. Once governments regulate better, there’s more chance of opening up integration with traditional financial infrastructure and there would be more mass adoption as well,” Reitz told business publication Quartz.