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The crypto multiverse
To exclude, enforce or encourage, that is the question facing financial regulators globally as crypto assets gain wider currency
Darryl Yu 9 Jun 2023

For Binance, the world’s largest cryptocurrency exchange, the past two weeks have been a roller-coaster ride. After obtaining its first Southeast Asian licence from Thai regulators, it is now being sued by the US Securities and Exchange Commission (SEC) on 13 charges, including misuse of customer funds and unregistered offer and sale of securities.  

The case of Binance highlights the different approaches that financial regulators are taking globally in dealing with the cryptocurrency market. Protecting investor interests is top of mind, but while some jurisdictions are taking a rigid, conservative stance, others are keen on providing a nurturing environment for digital assets to become a mainstream investment class.

In the United States, the regulation of crypto assets varies across states and agencies – it is neither consistent nor comprehensive. In fact, US financial regulators appear to have taken a more combative approach. A day after taking action on Binance, the SEC charged crypto exchange Coinbase with operating in the US as an unregistered broker.

Those actions are not unprecedented. In 2020, the SEC filed a lawsuit against Ripple, alleging that the company had raised US$1.3 billion through the sale of unregistered securities in the form of XRP tokens. In October 2019, the securities watchdog levelled a similar charge against Telegram, accusing it of raising US$1.7 billion through the sale of unregistered securities in the form of Gram tokens.

The SEC applies the so-called Howey Test to determine whether a crypto asset is a security, which involves the investment of money in a common enterprise with an expectation of profit from the efforts of others, and therefore subject to regulatory requirements.

Other markets in Europe and Asia have generally taken a more accommodating approach. Last month the European Union adopted a comprehensive regulatory framework for crypto assets. Known as the Markets in Crypto-Assets Regulation (MiCA), the law covers issuers of unbacked crypto assets, such as stablecoins, as well as trading venues and wallets for such assets.

MiCA aims to protect consumers, preserve financial stability, prevent market abuse, and foster innovation in the crypto asset space. First proposed in 2020, the regulation will also require service providers in the sector to disclose information on their environmental and climate impact, as well as comply with anti-money laundering rules.

Digital asset hub ambitions

In Asia, crypto regulation is gathering pace with Singapore and Hong Kong vying to be the region’s digital asset hub while seeking to ensure investor protection. Just this month Hong Kong’s Securities and Futures Commission (SFC) set the rules for crypto exchanges operating in the city, requiring them to apply for a VASP (virtual asset service provider) licence before they can engage with retail investors. The new regulation will cover areas ranging from safe custody to cybersecurity. Crypto exchanges such as Huobi Global and OKX have announced plans to obtain a licence in the near future.

Singapore has laid out its own rules. In January 2020 the Payment Services Act came into effect, requiring cryptocurrency businesses operating in the city-state to register with the Monetary Authority of Singapore (MAS).

The regulator has also issued guidelines for companies seeking to raise funds through initial coin offerings (ICOs), requiring them to provide clear and detailed information to investors and obtain regulatory approval before launching an ICO.

Emerging economies in Asia such as the Philippines view cryptocurrencies as a way to improve financial inclusion. For example, overseas Filipino workers (OFWs), who regularly remit part of their incomes to support their families back home, can send cryptocurrencies instead through peer-to-peer methods, thereby bypassing costly intermediaries.

Mainland China is one of the significant outliers in the region as it takes a hardline stance on cryptocurrencies, banning the mining and trading of the asset.

However, Chinese financial regulators have fully supported the development of the technology underlying cryptocurrencies, using it to develop its central bank digital currency (CBDC), the e-CNY. The pilot scheme has the potential to improve financial processes in economic regions such as the Greater Bay Area (GBA), which includes Guangdong province, Hong Kong and Macau.

“The successful launch of programmable use cases in the GBA could provide a foundational framework for how other CBDCs could interact in cross-border commercial scenarios,” according to a white paper released recently by PwC and Standard Chartered. “This could pave the way for a network of more interconnected and efficient economies across the globe, utilizing digital currency.”

Financial regulators will have to increasingly focus on cryptocurrencies as their adoption, whether as a payment method or investment asset, widens further in the coming years. Globally, the cryptocurrency market was valued at US$4.67 billion in 2022 and is expected to expand at a compound annual growth rate of 12.5% from 2023 to 2030, according to Grand View Research. It is estimated that there were 425 million crypto owners worldwide by the end of 2022, up 39% from the start of the year, with ethereum ownership surging 263% during the period.

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