Cryptocurrency Regulations and Policies: All You Need to Know

by Olateju Oluwatomisin
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Cryptocurrency regulations.

Cryptocurrency first emerged in 2008 and has since then become a revolutionary digital asset. Its foundation in blockchain enables it to challenge traditional financial systems. Crypto offers a secure yet transparent P2P (Peer-to-Peer) transaction with a central authority, unlike traditional financial services.

All cryptocurrency stakeholders and enthusiasts are responsible for understanding and complying with its regulatory policies. This article will walk you through the nooks and crannies of cryptocurrency regulations.

Why is Cryptocurrency Regulations Necessary?

Crypto regulations are necessary for maintaining order, stability, fairness, and inclusion. They protect the interests of the consumers, investors, and the government. Cryptocurrency, being an uncharted territory, would benefit from some regulations to ensure the following outcomes:

  1. Fair competition

Cryptocurrency regulations help maintain a level playing field as they ensure that players in the crypto market operate under the same rules and standards. Regulatory measures will prevent unfair advantages and promote healthy competition, leading to better consumer products and services.

  1. Market stability

Market stability is vital in crypto to prevent market manipulation and reduce the influence of crypto whales. The right cryptocurrency regulations can mitigate the risks associated with highly volatile assets. All these will create a financially stable environment and further drive growth and adoption.

  1. Safety of consumers and investors

Investors and consumers are the heart of the crypto markets; because of their adoption, the market cap is over $2.5 trillion.

Proper crypto regulations will protect their investments from fraud, scams, etc. Regulatory policies must be tight around exchange platforms to discourage them from selling users’ data and protect their funds.

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  1. Prevention of criminal activities

Cryptocurrency’s decentralized and anonymous nature made it perfect for illicit activities like money laundering, tax evasion, and terrorism financing. Existing policies to combat these illegal activities include Anti-Money Laundering (AML) and Know Your Customer (KYC) laws. 

By enforcing these laws, cryptocurrency dealings will be rooted in transparency and accountability, both of which will help authorities track and prevent financial crimes.

  1. Integration with the traditional financial system

One of the significant issues facing the traditional financial system is integrating it with cryptocurrency and blockchain technology. 

For this to occur, cryptocurrency must be guided by the existing financial rules and regulations. Such integration will further increase the reach of cryptocurrency and rid the lapses of the traditional financial system. Making both stable and having a broader audience to serve.

  1. Taxes

Since time immemorial, tax evasion has been a significant problem facing the financial sector. The vast potential of people to build wealth with crypto makes it tax-inclusive.

The purpose of the formulation of cryptocurrency policies is to protect the crypto market, stakeholders, governments, and society.

History of Cryptocurrency Regulations

Since it broke into the mainstream in 2008, the crypto market has undergone many changes, including regulatory policies.

  • Early days of crypto regulations

Around 2009, during the early days of cryptocurrency, the authorities were not concerned about cryptocurrency, particularly Bitcoin, which was the most common at the time. So, cryptocurrency operates in the grey area of the law since no one explicitly forbids or promotes it.

The FBI crackdown on the Silk Road website and the hacking of the Mt. God exchange in 2013, however, prompted scrutiny and forced the call for regulatory practices around cryptocurrency. 

Here’s the backstory about the closure of the Silk Road (SR) website: The SR website is a dark web where people trade illegal items ranging from guns to drugs to hacked passwords and other contrabands. These transactions were done with Bitcoin.

These events show that cryptocurrency is a tangible digital asset. However, as good as it is, if left unchecked, it will fund the next weapon of massive destruction.

  • Cryptocurrency regulations from 2013 till the present day

Five years later, the cryptocurrency market cap is $ 1.5 billion, making it one of the top investment opportunities for people. It witnessed over 6000%  increase, starting from $13 in January and climaxing at $250 in May.

In 2013, the FinCEN (Financial Crimes Enforcement Network) of the United States listed cryptocurrency exchanges as money services businesses, which means their activities are regulated by the Anti-money Laundering (AML) and Know-your-customer (KYC) guidelines.

In the United States, along with FinCEN, the Security and Exchange Commission (SEC), Commodity Figure Trading Commission (CFTC), and Internal Revenue Service (IRS) regulate different aspects of cryptocurrency, subjecting it to property transaction tax in all cases.

In June 2014, The Financial Task Force (TFTF) released a comprehensive report on virtual currencies that could be used to launder money and facilitate or sponsor crimes. The report implored countries to strictly apply Anti-Money Laundering (AML) and Combating Financing Of Terrorism (CFT) measures to virtual assets providers (VASPs).

While Europe and Asia follow in the footsteps of the United States, the European Union, however, came up with the Fifth Anti-Money Laundering Directive (5AMLD) in 2020.

In 2023, the European Commission introduced the Markets in Crypto-Assets (MiCA) regulation to provide a comprehensive framework for crypto service providers.

Cryptocurrency Regulations in Nigeria

On February 5, 2021, the CBN (Central Bank of Nigeria) released a directive to all financial institutions to stop transactions with all crypto exchange platforms and close all accounts connected with any cryptocurrency dealings. Remember, this is at the height of the infamous Endsars protest.

In December 2023, CBN lifted the ban on Virtual Assets Service Providers (VASPs) to align itself with the world standard, according to The Financial Task Force (TFTF).

Below are some of the rules guiding crypto exchange in Nigeria.

Cryptocurrency exchange platforms must:

  1. Obtain a Security and Exchange Commission (SEC) license.
  2. Register with the Corporate Affairs Commission (CAC).
  3. Maintain a minimum paid-up capital of 500 million Naira.
  4. Have a BVN (Bank Verification Number).
  5. They must comply with AML and KYC measures.
  6. They must have a physical presence in the country to support the locals.

Now, what do these cryptocurrency policies mean to you as a crypto stakeholder in Nigeria? Well, the current situation is dicey. Depending on how you view it, there are positive and negative sides to it.

  • The negative side

The recent tussle with Binance authorities, detention of Binance execs, the suspension of peer-to-peer activities, blocking of the Binance website, and accusations from both parties — the Nigerian government and Binance authorities is not a good sign for crypto stakeholders in the country.

This shows that Nigeria must be more conducive to embracing cryptocurrency operations,  encouraging its adoption, accessibility, and growth in the country.

  • The positive side

With the ongoing tussle between the Nigerian government and Binance authorities, more people have heard about Binance and cryptocurrency than before. This case threw cryptocurrency into the mainstream, leading to increased awareness and hopefully will drive public interest.

The encounter can help the federal government formulate a more concise cryptocurrency policy and further promote investor interests.

Notable Events Around Cryptocurrency Regulations

  1. Recognized as a legal tender

In 2017, Japan adopted Bitcoin as a form of payment— the first in the world to do so. This move creates a structure for crypto regulation in the country and boosts market trust and integrity. It spurred the development of technology like Bitcoin ATMs in the country.

El Salvador became the first to recognize Bitcoin as a legal tender in 2021. In April 2022, the Central African Republic adopted Bitcoin as a legal tender. Making them the second country in the world and the first in Africa to do so.

  1. US cryptocurrency regulations and China crackdown

In 2021, China completed its raid and clampdowns on crypto assets stakeholders, banning all cryptocurrency-related activities from the country. The crackdown is to maintain financial stability and capital control and promote the adoption of the digital Yuan.

A year after the intense crackdown on cryptocurrency in China, the United States announced a new framework that grants more authority and control to the SEC and CFTC. The new framework allows them to monitor and regulate the crypto exchanges, trading platforms, and other digital assets.

In 2024, the U.S. Congress clarified the regulatory role and responsibilities of the SEC and CFTC. It is more of a division of labour between the SEC, CFTC, and cryptocurrency markets.

Despite all these, regulating cryptocurrency remains complex and daunting, given the evolving and unpredictability of the crypto market.

The Impact of Cryptocurrency Regulations

The suitable regulations and policies will enhance market stability, boost investors’ confidence, reduce volatility, and promote transparency and public trust.

However, stringent cryptocurrency policies can and will stifle innovation and development. Reasonable regulations will promote good innovation and be flexible— adaptive to the excellent time and the opposite.

A lack of regulation will cause more harm to the industry and society at large. Therefore, moderation and open-mindedness are the best options when creating cryptocurrency policies.

Challenges Facing Cryptocurrency Regulations

  1. Market volatility and manipulation

One of the significant challenges in regulating cryptocurrency is the volatile nature of the market. For instance, Bitcoin witnessed a 6600% increase between January and May 2021.

Another significant issue is manipulation; typical manipulation schemes include pump and dump, wash trading, and spoofing.

  1. Cross-border transaction

The issue with cross-border cryptocurrency transactions is a serious concern. These challenges of this transaction include regulatory disparities, Anti-Money Laundering concerns, taxes, and differences in exchange rates.

  1. Adaptive policy 

Adapting cryptocurrency to the existing financial rules is challenging. The need for stability in the cryptocurrency markets is one of the features that makes it hard to regulate with the same set of rules.

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Cryptocurrency regulations would help protect the integrity and stability of the market, regulate the activities of crypto whales, and prevent illegal activities like money laundering, tax evasion, and terrorism financing.

However, regulating cryptocurrency is complex, making some countries avoid it while others cash in on it through tax. It is the responsibility of all stakeholders to be familiar with the regulatory policies in their region and strictly comply with them. 

Edited by Priscilla Ajayi.

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