Against the backdrop of the protracted crisis and various macroeconomic factors, regulators devoted noticeably less attention to the cryptocurrency market than in 2021.
At the same time, even more countries joined the development of CBDC, private companies continued to press for approval of spot Bitcoin ETFs, and DeFi services found themselves in the sanctioning crosshairs.
ForkLog examined how the regulatory landscape for the digital asset industry changed in 2022.
Regulatory Trends
CBDC
Research by BIS showed, that nine out of ten central banks worldwide are studying CBDCs. Most regulators favour projects with retail-use cases.
BIS also urged countries to collaborate early in CBDC development and called national digital currencies the foundation of monetary systems of the future. The organisation noted that cryptocurrencies, with their systemic flaws, are not suitable for this role.
China remains the undisputed leader in the CBDC race. According to WSJ, on the opening day of the Beijing Olympics the digital yuan (e-CNY) surpassed Visa in transaction volume. Before that, Bloomberg reported a ban on rivals to the e-CNY in the Olympic Village.
Authorities in USA and Australia saw national-security threats in the Chinese project. American congressmen even introduced a bill to remove apps for e-CNY from the App Store and Google Play.
In January Fed released a report on the digital dollar with no conclusions about its necessity, and in September the head of the agency Jerome Powell stated that there is no decision yet on launching a CBDC.
In ECB the aim is to complete the preparation of the digital euro by 2023, and then over the next three years test it for release by 2026. The issuance of the European CBDC is planned to be capped at €1.5 trillion.
In August, Nigeria reported achieving $9.3 million in transaction volume using eNaira since its launch in October 2021. Later, local authorities restricted cash withdrawals in the country to promote the CBDC.
In November India launched a pilot project for a wholesale digital rupee. In December, the local central bank began testing a retail CBDC.
In 2022 the list of countries seeking to issue their own national digital currencies was joined by Turkey, Australia, Brazil, Mexico, Jamaica, Japan, Hong Kong, Indonesia, Thailand, Taiwan, Pakistan, Myanmar and a number of other countries.
Stablecoins
After the collapse of the algorithmic stablecoin UST and the Terra ecosystem overall, “stablecoins” became one of the main regulatory trends in the crypto industry in 2022.
In October US Representative Patrick McHenry warned of “tough debates” regarding a comprehensive federal stablecoins bill. In his words, the dialogue had stalled.
In the same month his colleague Jim Himes doubted the bill’s passage before January 2023. According to Bloomberg, among other things the bill would introduce a two-year moratorium on algorithmic stablecoins.
Regulators view such coins with concern. The Fed noted their risks to financial stability, and the Financial Stability Board (FSB) found non-compliance with the standards established for digital assets by the central banks of the largest economies.
Britain plans to include regulation of “stablecoins” as a payments mechanism in the Financial Services and Markets Bill. The Treasury ruled out the legalisation of algorithmic stablecoins.
In China, the Chaoyang District People’s Court ruled illegal payments in USDT. According to the ruling, employers may not make wage payments in “stablecoins.”
In Japan, Parliament passed a stablecoins bill recognising them as digital money. The law will take effect in summer 2023. Meanwhile, the Financial Services Agency (FSA) recommended restricting the use of algorithmic stablecoins within the country.
Bitcoin-ETF
In 2022, would-be Bitcoin-ETF issuers continued to fight the SEC. In February the regulator postponed a decision on the Grayscale Investments Grayscale Investments application. In March the CEO of the asset manager Michael Sonnenshein said he was prepared to sue the SEC if the conversion of GBTC into an exchange-traded fund is denied.
In June, Grayscale filed the corresponding lawsuit against the U.S. Securities and Exchange Commission. According to the company, the process will take one to two years. The asset manager argues that the SEC is “arbitrary” and “discriminatory” in reviewing spot Bitcoin-ETF applications compared with futures-based options.
The case against the regulator was backed by the nonprofit Blockchain Association. Messari founder Ryan Selkis called the SEC’s position “a fraud”, and the WSJ editorial board criticized the head of the agency Gary Gensler over the instrument’s situation.
In December, the regulator in response to the Grayscale lawsuit described the decision as “well-founded and reasonably explained.” The SEC still has applications from WisdomTree, One River, VanEck, ARK and 21Shares.
Tornado Cash
One of the most discussed topics of 2022 was OFAC sanctions against Tornado Cash.
On 12 August in the Netherlands, the developer of the crypto mixer Alexey Pertzer was arrested. In the same month, a rally in his support took place in Amsterdam.
OFAC’s decision was criticised by Kraken co-founder Jesse Powell, Cardano founder Charles Hoskinson and US Representative Tom Emmer.
A lawsuit against the U.S. Treasury was filed, which Coinbase supported. A separate suit was brought by Coin Center, an advocacy and protection group for crypto interests.
In November, the agency updated sanctions against Tornado Cash, citing its role in financing North Korea’s nuclear program. In December, a court in the Netherlands extended Pertsev’s arrest until February 20, 2023.
United States
The year in the United States began with the SEC removing amnesty for crypto companies that self-report securities-law violations.
In March, US President Joe Biden issued an executive order coordinating federal agencies in regulating cryptocurrencies. The document notes that about 40 million Americans (roughly 16% of the adult population) have invested in, traded or used digital assets.
In June, Senators Cynthia Lummis and Kirsten Gillibrand introduced the full version of a bipartisan crypto-regulation bill titled the Responsible Financial Innovation Act.
The bill would grant the CFTC additional powers, incorporate SEC’s definitions of securities, and require service providers to disclose information to help clients make informed decisions.
Work on a comprehensive bill — from taxation to consumer protections — began in December 2021. The bill could be enacted in 2023.
In July, CFTC Chairman Rostin Behnam announced the creation of the Office of Technology Innovation, which would oversee crypto regulation.
In August, the CFTC approved a joint rule with the SEC requiring hedge funds with AUM over $500 million to report cryptocurrency-related risks.
In September, the White House unveiled a framework for regulating the crypto industry, envisaging a range of initiatives relating to providers of services tied to digital assets, CBDCs, privacy and energy consumption.
The U.S. Office of Government Ethics banned White House, Fed, Treasury and other federal employees who hold cryptocurrencies from participating in drafting the regulatory framework for the industry.
The White House forecasted an additional $11 billion in federal revenue from taxes on digital assets by 2032. The document also envisages boosting the Justice Department’s budget by $52 billion as part of a strategy to fight ransomware operators who use cryptocurrencies.
The Treasury proposed to report foreign crypto accounts with assets over $50,000 to the Internal Revenue Service (IRS). If approved, the new requirements will take effect in 2023.
European Union
In March, ECON by a majority approved the MiCA regulation (Markets in Crypto Assets), which became the main crypto-regulation document in the EU in 2022. It did not include the amendment to ban mining via Proof-of-Work.
In June, the Council and the European Parliament preliminarily agreed on MiCA provisions, including requirements for CASP, aimed at consumer protection. The bill does not apply to NFTs.
In October, Council members signed the MiCA text without further discussion. The document includes rules that apply to issuers of unbacked crypto assets and stablecoins, trading and custodial platforms.
In October, ECON committee members backed MiCA. Final approval was expected at the November plenary, but it was postponed to 2023. The document will be published in the Official Journal of the European Union before it takes effect in 2024.
In Belgium the Financial Services and Markets Authority introduced mandatory registration for crypto exchanges and custodial-wallet operators. Unregistered firms face fines.
In Portugal, the 2023 budget proposal envisages a 28% income tax on digital assets held for less than a year. After this period, it is not charged.
In Italy, amendments to the 2023 budget proposal provide for a 26% capital gains tax on profits from trading digital assets. The tax will apply to profits exceeding €2,000 ($2,106).
In Spain, the National Securities Market Commission (CNMV) tightened cryptocurrency advertising rules — a mandatory disclaimer warning about the asset’s unregulated status and the risk of losing funds.
Asia
Apart from promoting the digital yuan, in 2022 China tightened criminal penalties for illegal fundraising through cryptocurrencies. At the same time, the Shanghai High Court recognised Bitcoin as a virtual asset of economic value, protected by law.
According to former BitMEX CEO Arthur Hayes, China intends to return to the digital asset industry via Hong Kong. The latter has softened regulation of the sector and launched trading of the first crypto-ETFs.
In India, a 30% tax on income from digital asset operations was introduced. Traders will not be able to offset losses in one cryptocurrency with profits in another. Parliament did not heed the views of local industry participants who opposed such amendments.
South Korea’s Financial Services Commission required crypto exchanges to follow FATF recommendations. In the wake of the Terra collapse, local financial regulators held an emergency meeting, after which media reported the creation of a Committee on Digital Assets.
In Singapore, the Monetary Authority of Singapore (MAS) issued two consultation papers aimed at reducing consumer harm from crypto volatility by tightening oversight of the industry. Over the year, Coinbase, Blockchain.com, Paxos and Circle obtained licences in the country. MAS also tested transactions with tokenised fiat currencies.
In Indonesia, value-added tax on crypto-asset transactions and capital gains tax on such investments were introduced at 0.1%. Authorities also intend to launch a state Bitcoin exchange.
In Thailand, the Securities and Exchange Commission (SEC) banned businesses from accepting payments in digital assets. At the same time the government exempted crypto transfers involving licensed exchanges from VAT until the end of 2023.
In the Philippines, the central bank suspended for three years the processing of applications and issuing licences to virtual asset service providers to balance innovation in the financial sector with potential risks.
Other jurisdictions
In Britain, there were plans to turn the country into a “crypto hub.” To this end, among other things, a Financial Services and Markets Bill is being drafted, including regulation of cryptocurrencies and other digital assets.
In Switzerland, residents were required to verify their identity when conducting cryptocurrency transactions above 1,000 Swiss francs within 30 days. The new requirements come into force in January 2023.
In Australia, the tax office intensified oversight of cryptocurrency taxes for investors. Senator from New South Wales Andrew Bragg announced a new digital-asset bill, aimed in part at countering e-CNY.
In the Central African Republic (CAR), Bitcoin was recognised as legal tender alongside the local franc. The IMF criticized such a move due to potential issues for the country and the region. The CAR also launched a “Bitcoin-backed” digital currency, Sango Coin.
In Nigeria, the Securities and Exchange Commission equated cryptocurrencies with shares and introduced registration requirements for trading platforms. The authorities have also been in talks with Binance to create a free digital economic zone to accelerate blockchain adoption in the region.
In the UAE, Dubai authorities passed a law on virtual assets and established a regulatory body. Licences to operate in the country were granted to Bitcoin exchanges Binance, OKX and FTX. The latter has since had its licence revoked.
In El Salvador, Bitcoin bonds issuance was postponed awaiting more favourable conditions. The authorities planned to issue securities worth $1 billion in March, and by June, for the second time, deemed themselves not ready for it. By year-end, El Salvador opened the National Bitcoin Office to oversee all local projects related to the first cryptocurrency.
In Brazil, Bitcoin was recognised as a payment method and an investment asset. Regulation will be overseen by the central bank and the securities regulator. The law was signed by President Jair Bolsonaro and will take effect in June 2023.
In Argentina, Parliament included a ban on cryptocurrencies in the plan to refinance the IMF’s $45 billion debt. Later, the local central bank restricted the sale of dollars to Bitcoin traders at the official rate.
In Paraguay, the Senate passed a bill establishing a regulatory framework for the crypto industry, but President Mario Abdo Benítez vetoed the document. He argued that high electricity consumption by mining could hinder the development of a sustainable industry.
In Panama, the National Assembly approved a bill regulating the circulation of crypto assets. President Laurentino Cortizo did not support the document in its approved form and issued a partial veto due to FATF non-compliance.
In Cuba, the central bank unveiled rules licensing providers of services in the virtual assets sphere. The regulator will punish violators under existing banking and financial rules.
In Honduras, the Prosperа Special Economic Zone recognised Bitcoin and other cryptocurrencies as legal tender. The charter-city region is situated on Roatán Island and enjoys considerable autonomy.
Opinions
Against the backdrop of numerous bankruptcies in 2022, criticism largely targeted regulators, notably the SEC. For instance, US Representative Tom Emmer accused the agency of “unethical treatment” of the crypto industry, and its head Gary Gensler of supervision failure.
Billionaire Mark Cuban also criticized the head of the SEC for unclear rules for Bitcoin entrepreneurs and investors. According to LBRY CEO Jeremy Kauffman, the agency intends to “damage or destroy the crypto industry in the United States.”
Armsstrong? Noted here: Coinbase CEO Brian Armstrong is critical of American regulation. He argues that a hardline approach stifles industry growth and drives projects and developers to leave the U.S.
Armstrong also predicted a split in regulatory oversight of the crypto industry between agencies. In his view the SEC will not fully regulate the sector, as not all digital assets meet the definition of a security.
Ripple CEO Brad Garlinghouse called for clear rules for the crypto industry and accused the SEC of inconsistency.
CFTC Chair Rostin Behnam warned industry participants about the inevitability of regulation. He argued that the agency’s oversight of the digital-asset market could bring significant benefits, including a potential rise in Bitcoin’s price.
Fed Chair Jerome Powell and ECB President Christine Lagarde urged tighter regulation of the DeFi sector amid its growth. They argued that numerous collapses in the industry justify tougher oversight.
Takeaways
2022 reinforced the case for the inevitability of regulating the digital-asset industry. Regulators are increasingly describing the crypto market as a threat to financial stability.
More and more countries are considering national digital currencies as an alternative to stablecoins. Some governments are testing and even deploying CBDCs in their financial systems.
FSB has already promised to present proposals for regulating the digital asset market with a concrete timeline for implementation by early 2023.
In the coming years, the confrontation between crypto projects and regulators is likely to intensify. This could attract investment as well as deprive the industry of advantages in the eyes of institutions. All that remains is to watch how markets react to events.
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