The International Monetary Fund expressed its vision regarding the legal status and future position of cryptocurrencies.
The IMF noted that despite the fact that cryptocurrencies have been around for more than 10 years, it is only now the efforts to regulate them have moved to the top of the political agenda.
This is due to the fact that crypto assets are increasingly being used as speculative investments, hedging against weak currencies and for making payments.
The rapid growth of the market capitalization of crypto assets and their penetration into the financial system have led to increased efforts by states to regulate them.
This has led to an increase in the number of products and offers using digital assets, the development of innovations that have facilitated international financial transfers.
The failures of crypto issuers, exchanges and hedge funds related to the recent fall in the value of cryptocurrencies have added incentive to their regulation.
Problems of crypto regulation
However, the regulation of cryptocurrencies in practice faces serious problems. The application of existing regulations to crypto assets or the development of new ones is a difficult task, primarily due to the novelty of the technology and its rapid development.
Regulators are struggling to keep up with the times, facing numerous challenges along the way.
Monitoring of crypto markets is difficult because the data is heterogeneous. It is difficult for regulators to monitor thousands of participants who are not subject to the usual disclosure or reporting requirements due to the novelty of the technology and the lack of clear regulation.
There is no single approach between regulators of different countries to the regulation of digital assets, their status and terminology.
This also complicates the international legalization of cryptocurrencies. The use of crypto assets attracts the attention of many internal regulatory bodies — banks, commodities, securities, payments and others with different frameworks and goals.
Some regulatory authorities pay attention to consumer protection, while others monitor the safety and reliability or financial integrity.
There are a number of participants in the crypto market — miners, validators, protocol developers, who cannot be covered by the current financial regulation.
Regulators need to take a clear position on how the underlying technology used to create crypto assets correlates with other public policy goals, for example, to determine the case of the huge energy intensity of “mining”.
Many functions of the financial system, such as providing leverage and liquidity, lending and storing value, are now actively used in the crypto world.
All this leads to increased calls for the application of the principle of “the same activity, the same risk, the same rules” with the necessary changes to the crypto world, increasing pressure on regulators to act.
Different approaches to the regulation of cryptocurrency
Despite the fact that some countries such as Japan and Switzerland have already amended or introduced new legislation covering crypto assets, and others, including the European Union, the United Arab Emirates, the United Kingdom and the United States are under development, the national authorities of the states adhere to completely different approaches to the policy of regulating cryptocurrencies.
Some countries have banned the issue or storage of digital assets by residents or the ability to make transactions with them or use them for payments.
Other countries have turned out to be much more loyal to crypto regulation, trying to attract companies to develop the markets of these assets.
The resulting fragmented global response does not ensure an equal playing field and does not protect participants, as players migrate to the friendliest jurisdictions with the least strictness of regulation, while remaining accessible to everyone with Internet access.
International regulation of cryptocurrency
International financial organizations have also taken care of the status of cryptocurrencies. The Financial Action Task Force has created a global framework for all virtual asset service providers.
The International Organization of Securities Commissions (IOSCO) has issued regulatory guidance on crypto exchanges.
The Financial Stability Board has started monitoring crypto asset markets; has released a set of principles to guide the regulation of global stable coins; is developing guidance for a wider range of crypto assets, including unsecured crypto assets.
Having analyzed the current situation and the legal status of cryptocurrencies, the IMF calls for a global response that would be
(1) coordinated so that it could fill regulatory gaps arising from intersectoral and cross-border emissions and ensure equal conditions;
(2) consistent in order to comply with the basic approaches to regulation in all areas of activity and a spectrum of risks; and
(3) comprehensive to cover all participants and all aspects of the crypto ecosystem.
The global regulatory framework will bring order to the markets, help instill consumer confidence, set the boundaries of what is permissible and provide a safe space for the continuation of useful innovations.