Important Facts on Cryptocurrency Regulations

Cryptocurrency regulations are the legal and procedural frameworks enacted by governments to influence all aspects of digital currency. Currently, cryptocurrency regulations vary across jurisdictions and can range from creating elaborate rules to modifying existing laws to suit crypto users. Most support blockchain technology and can prohibit the usage of controversial cryptocurrencies. Although the core feature of cryptocurrencies is decentralized, i.e., it does not have any central authority or bank to regulate its supply. However, cryptocurrency regulations may strike a compromise and allow partial or complete integration with the existing financial systems. 

Main Intentions of Cryptocurrency Regulations

The cryptocurrency regulations irrespective of which government is passing them have some common intentions. Both in the short-run and long run, the cryptocurrency regulations will invariably affect every cryptocurrency exchange and crypto user.

• Safeguard the interests of crypto users against crypto scams and market frauds.
• Take decisive actions against terror financing and illegal money laundering.
• Increase market participation by boosting investor confidence.
• Blockchain technology’s innovations will be encouraging for other companies.
• Interoperability among blockchains needs to be facilitated.
• Promote financial inclusion by increasing the accessibility of cryptocurrencies to more people.
• Offer clarity on crypto tax rules.

Cryptocurrency Regulations in the US

The US is the citadel of cryptocurrencies. 55 million Americans are using cryptocurrencies, despite ambiguous regulations. The election of President Donald Trump in November 2024 is having a ripple effect on the cryptocurrency industry. He is the first American President who is openly promoting cryptocurrencies and encouraging investment like never before.

The Commodity Futures Trading Commission (CFTC), Internal Revenue Service (IRS), and Securities and Exchange Commission (SEC) have varied opinions on cryptocurrencies. The SEC wants to classify digital assets as securities. The agency will help in better investor protection and need all offerings that qualify as investment contracts. In 2023, the SEC approved Bitcoin and Ethereum exchange-traded funds (ETFs).

Contrastingly, the CFTC argues that cryptocurrencies are commodities just like oil, gold, and tradeable commodities. The commodities are assets that can support an active market for cryptocurrency futures. The agency has initiated enforcement actions against unregistered Bitcoins. Cryptocurrencies are property according to the IRS. This is their position since 2014. Therefore, they want to tax cryptocurrencies and ensure that capital gains are also taxed.

Cryptocurrency Regulations in Other Countries

There are several countries in the world that have a range of rules for digital currencies. Some have adopted a similar approach to the US, while some have a radically different approach. These are some of the examples of other countries that have prioritized regulations albeit differently.

Canada

Canada is the US’s northern neighbor. It regulates all cryptocurrency trading platforms with the help of provincial government-backed agencies. Investment firms in Canada classify cryptos as “moneyed services”. The taxation of other commodities is done on similar lines as cryptos. The Canadian central government allows ETFs to be traded on the Toronto Stock Exchange.

Britain

The British government only regulates digital asset companies. However, it does not and still has not framed any rules for cryptos. Therefore, cryptos remain officially unregulated as of May 2025. The Financial Conduct Authority (FCA) ensures that cryptocurrency companies are following the standard practices to prevent both terrorism financing and money laundering. The Advertising Standards Authority however does regulate advertisements related to digital assets. 

Switzerland

In 2020, the country passed a law on Distributed Ledger Technologies and enabled tokenization for financial instruments, rights, and claims. The income tax and wealth tax include crypto holdings too. There are no exemptions on crypto income.

El Salvador

Bitcoin is treated as a legal tender in El Salvador. The acceptance by merchants is compulsory and within the territorial boundaries, Bitcoin is used. Foreigners gaining on Bitcoin do not pay taxes on income earned on cryptos. However, the government accepts tax payments in Bitcoin. 

South Korea

In South Korea, the Korea Financial Intelligence Unit (KFIU) has made it compulsory for all cryptocurrency exchanges and virtual asset service providers to register. However, in 2021, the government prohibited the use of privacy coins. The Protection of Virtual Asset Users in 2023 went into effect. The Act ensured user protection by requiring service providers to follow certain practices. 

Potential Risks Arising From Cryptocurrency Regulations

The risks that can arise from cryptocurrency regulations are several. However, most analysts agree that the advantages of regulations or the main intentions of regulations outweigh the drawbacks. Therefore, there is no reason to believe that these risks are permanent. With time, the intensity of these risks may reduce considerably.

Restriction of Market Access

Strict and overbearing regulations can cripple market access and thereby deter investments altogether. 

Stifle Innovation

Cryptocurrencies thrive on innovations. If the rules and regulations turn out to be too stringent, then it can obstruct innovation. Hence, it can lead to stagnancy and discourage innovation.

Increase Cost of Doing Business

Sometimes, cryptocurrency regulations may increase the cost of doing business. It can lead to infrastructural problems and lead to a slowdown as investors may not be able to afford those changes.

Rule Changes May Lead To Policy Inconsistencies

Crypto laws often get affected if the regulations are out of sync with industrial policies and international financial realities. Therefore, participants need to stay alert for policy changes.

Crypto’s Financial Performance

The financial performance of the crypto industry will substantially increase if regulations lead to an increase in the cost of holding digital assets. Therefore, price performance may diminish considerably.

Final Thoughts

Cryptocurrency regulations are a double-edged sword. The main intentions of bringing in crypto regulations are indeed noble. The financial industry as we know it today, may transform if proper regulations become a success.  The regulations can also help in resolving many critical issues on inflation, financial liquidity, and business transactions. It will indeed have a profound impact on payment systems including cryptocurrency exchanges. However, there are temporary risks related to stringent crypto regulations. Hence, the most ignorable risk is that regulations may stifle innovation and make crypto transactions costlier.