Crypto, in a sense, is a grand experiment that has no geographic borders. Bitcoin does not belong to the United States, China, Russia or to any company, government, or king. Bitcoin just is. That’s part of the appeal.
Crypto regulation, however, is a different beast. The laws stop at borders. Politics matter. Most countries are still struggling with how to handle this curious invention – tech that doesn’t cleanly fit into any one legal box. So regulation is its own sort of global experiment. Because every country is more or less doing its own thing, we can cast our eyes around the globe to see what’s working and what’s not.
This is piece is part of CoinDesk's "Policy Week."
As a thought exercise, what if we could cherry-pick the smartest bits of crypto regulation from around the planet? What could we emulate in the United States?
A few caveats: First, the U.S. has some unique regulatory challenges that make it trickier to crack. “We have a fragmented regulatory system. We don’t have a unitary regulator the way some jurisdictions do, which allows them to more easily respond to innovations that do not fit neatly into pre-existing product buckets,” says Timothy G. Massad, a nonresident Senior Fellow at Brookings who studies crypto regulation.
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This means that it might be unrealistic, from a practical perspective, to actually cobble together some sort of “greatest hits” of international policy. “A Frankensteining [or patching together of legislation] probably wouldn’t ever come to fruition,” says Sheila Warren, CEO of the Crypto Council for Innovation and co-host of CoinDesk’s “Money Reimagined” podcast. And while Warren doesn’t think we could actually cobble together any global legislation, she does allow that, “I love the blue sky thinking, and I love the concept.”
So that’s the spirit of this experiment – more of an idea-sparker than a true road map. And it’s also true that nearly every expert I spoke with emphasized that there isn’t yet a silver bullet – from any country – that solves regulation. “It’s too early to tell,” says Michael Piwowar, executive director of the Center for Financial Markets at the Milken Institute. “We’re in the early innings.”
But aren’t early innings the best time to speculate, to challenge our perspectives and to have a little fun? (Crypto is also the only topic on the planet where “global regulatory policy” can somehow be seen as “fun.”)
So let’s take a quick look at what the experts think of the regulatory globe:
Warren likes Japan’s approach to non-fungible tokens (NFT). “I think the process is really thoughtful. I think they’re consulting the right stakeholders, they’re looking at creators,” says Warren.
Japan is experimenting in how to set up good regulation, says Ananya Kumar, associate director of digital currencies at The Atlantic Center, an organization that tracks international crypto regulation. “The Bank of Japan is basically setting up associations that will help them clarify what the crypto activities are, and what the economic function of those activities are,” says Kumar.
It’s also true that Japan has some history with crypto regulation. After the dramatic Mt. Gox exchange hack in 2015, the country established consumer safeguards, which is why JP Koning, writing for CoinDesk, argues that “Japan was the safest place to be an FTX customer.”
The European Union
“MiCA [the European Union’s upcoming Markets in Crypto Assets policy] is by no means a perfect piece of legislation, but one of the things that they did do right was focus on central custodial intermediaries,” says Kristin Smith, CEO of the Blockchain Association. “I think that’s very positive.”
Massad also likes “pieces of MiCA,” specifically its approach to stablecoins. “I wouldn’t take it word for word,” says Massad, but “they’re bringing the stablecoin activity within the regulatory perimeter … as opposed to what we’re [in the United States] doing, which is trying to keep it out of traditional banking and otherwise leaving it to be regulated by state law.”
The United Kingdom
Massad says that both the EU and the U.K. have a basic legal framework for electronic money. While it’s imperfect, it’s at least “a starting point and you can build from that.”
So why does that matter? “We [in the United States] need a basic e-money law. We don’t have one. We don’t have a good framework for regulating payments, generally,” says Massad, which is why regulation is subject to state laws “that have been on the books since the telegraph era.” So drafting an electronic-money legal framework, says Massad, would be a “precursor to dealing with the challenges crypto poses.”
Kumar likes that Mexico is “looking at creating regulatory sandboxes” to more safely experiment with policy solutions. Kumar explains that “regularly sandboxes are an interesting way for countries to work with the private sector, form public/private partnerships, clarify the big questions about crypto, clarify the assumptions about crypto and then get to the business of regulating.”
She notes that sandboxing is controversial (here’s a primer), but says it provides a “contained environment to perform experiments.” In the case of Mexico, says Kumar, regulators have “gone back and forth on what should be the role of traditional financial institutions in crypto. Should they be allowed to trade in them? Hold them? Issue stablecoins?” They hope to find the answers in these regulatory sandboxes.
If regulatory sandboxes still seem a bit confusing, consider the case of Canada. Kumar points to Canada’s use of a sandbox to help figure out how to regulate exchanges. “Wealthsimple became the first exchange to get licensed in Canada, coming out of that regulation sandbox,” says Kumar. Or as the Canadian Securities Administrators explain on its website, the regulatory sandbox allows firms to “test their products, services and applications throughout the Canadian market on a time limited basis.”
“Any time a country provides a framework for centralized custodial intermediaries to register with the government, and to be regulated, that tends to provide a pretty good environment,” says Smith of the Blockchain Association.
Or as Piwowar puts it, for fintech regulation in general, Singapore “sort of wants to be the London of Asia. They want to be the safe regulatory environment that gives a foray into Asia.” Piwowar notes that Singapore has a chief fintech officer (Sopnendu Mohanty), which is a signal to entrepreneurs that the nation is open for business. For someone who wants to set up a company “they made it one-stop shopping,” says Piwowar, “which is very different than in the United States.”
The Swiss approach is similar to Singapore, says Piwowar – which is why you have so many crypto companies and foundations based out of Zurich and Zug.
Then again, as a bit of added nuance, Sheila Warren suspects the crypto-friendly reputation of Switzerland is beginning to fade. Their model of making it easy to set up shop was “very, very smart at the time,” says Warren. So what’s the hitch? “We’re so far beyond that,” she says. “Now we’re talking about the activities that need to be regulated.” She considers the Swiss foundation model to be “the best-in-class at the time” and says it still remains useful, but cautions that it’s “for a particular kind of thing.”
Finland (Helsinki, specifically)
“If I’m really, really frank, the places getting it right are the places that are going slower,” says Warren. “This is such a complicated area.”
She cites Helsinki as an example of thoughtful experimentation that could later pave the way for sound policy. “I actually think what Helsinki thought about in terms of data and data trust and data government, is really important and really interesting, and people don’t ever talk about it,” says Warren.
Warren knows that she’s biased – she was part of the World Economic Forum team that led the project – but says that Helsinki piloted a “blueprint for data policy” as a way to think creatively about how to organize public data in a way that preserves privacy. Helsinki was “contemplating a time when blockchain is part of the architecture of a system,” says Warren, “and I think that’s forward-thinking. That’s what I’m looking for.”
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Ananya Kumar describes Thailand’s new regulations as “more comprehensive than the rules in the U.S. and others,” and likes that they “have the beginnings of consumer protection regulation.” She says “consumer protection is really, really hard” but credits Thailand for the attempt.
She also appreciates the way Thailand has handled stablecoins because the country considers them “an e-money payment.” She added, “It’s legal, they allow for it, there’s a regulatory body that controls it and you can use it in payment.”
United Arab Emirates
“They’re experimenting, and they’re trying new things,” says Michael Piwowar, referring to Dubai’s launch of VARA, the Virtual Assets Regulatory Authority. “They want to be the leader not only in the Middle East, but also as a launching-off point for Africa and other places in the region,” says Piwowar. The UAE has set up zones that have common law jurisdictions, he adds, and “both Abu Dhabi and Dubai have been very successful at attracting businesses in financial services in general, and fintech in particular, and are now moving towards virtual assets.”
As for the Bahamas, Warren says with a laugh, given the FTX fiasco, “Boom, done, let’s go home. It had to be said.”
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