2021 was an exceptional year for the cryptocurrency market, and it surpassed $3 trillion in November. There are currently 6,800 different digital assets in circulation, and bitcoin and ether remain the most well-known. This move towards mainstream adoption and the significant amount of value involved has attracted attention from lawmakers. Globally, legislators looked at ways to increase scrutiny on the sector, including taxation and investor protection. As the popularity of cryptocurrency continues to grow, so will regulation. The issue is whether cryptocurrency regulation will stifle growth and innovation. Here is what to expect in 2022.
A stable coin is a digital currency that pegs its value to a fiat currency. For example, USD coin and Tether do not fluctuate in value; instead, they remain the same as the value of the fiat USD. As one of the main barriers to mainstream cryptocurrency adoption has been stability, stablecoins have big potential. They could hold the key to increased real-world use of cryptocurrencies worldwide. But for stablecoins to be used institutionally they need to be regulated. Regulators should strike a careful balance between protecting those that use them and allowing the development of stablecoins in a broader public domain. In 2022, we hope to see efforts made to reach this balance and support all involved adequately. If they cannot do this, we could see the potential of stablecoins’ prematurely stunted.
Wider cryptocurrency regulation
Calls to implement broader cryptocurrency regulation have come from all angles. They have come from various central banks and even the International Monetary Fund. Concerns raised include stability and volatility, the possibility of market manipulation, and fears they can be used in financial crimes. To protect retail customers, regulators will be keen to address volatility issues. Exchanges could likely see themselves subject to more rules to stay on the good side of regulators. In 2021, exchanges like Binance and Coinbase worked with regulators to create a beneficial solution for all. This will likely form a precursor for similar initiatives in 2022.
The European Council and Parliament will start negotiations on cryptocurrency as a part of the Markets in Crypto Assets framework. It aims to regulate digital assets and those who provide services for them. Like in the US, there is a focus on stablecoins. The EU has also proposed a regulatory sandbox on distributed ledger technology (DLT). This proposal is currently awaiting parliamentary approval. The European Central Bank is also looking at a possible digital euro. Several European countries have been involved in test running digital euros as a form of tender. Should the aforementioned EU framework be approved, only providers with a license can issue crypto and run exchanges within the bloc’s borders. Several states have regulated crypto, but EU lawmakers are keen on harmony and synchronicity.
US-based crypto investors are obliged to report crypto transactions on their annual tax returns. Outside the US, the requirements in terms of cryptocurrency regulation vary. This often depends on what a government considers a crypto coin to be. Some consider it the same as an asset or currency and therefore taxable. Meanwhile, others see it outside the realms of taxation. With a global crackdown on tax evasion, we can expect to see the matter of crypto tax becoming more defined. We may even see models similar to some in the gambling sector, where some platforms notify authorities of taxable wins or gains.
Fast Offshore has been working with cryptocurrency for over a decade. We have assisted countless entrepreneurs in setting up crypto-related businesses in many jurisdictions. Our services include company incorporation, payments, compliance, and ongoing maintenance as per your requirements. If you are a crypto entrepreneur who wants to launch a business, we can help.
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