Regulation

What this means for cryptocurrency, and for SCLP

With the growing popularity of cryptocurrencies, lawmakers are increasingly eager to regulate the space. This is to protect investors, and we see it as a positive step.

“Regulation is probably one of the biggest overhangs in the crypto industry globally,” says Jeffrey Wang, head of the Americas at Amber Group, a Canada-based crypto finance firm. “We would very much welcome clear regulation.”

Scallop Founder & CEO Raj Bagadi echoes this sentiment, "the path to global adoption of cryptocurrency can only occur with regulation. This is why we work in concert with regulators in the countries that Scallop operates in, and also it's the premise behind Scallop Chain - the first regulated blockchain."

Clear regulation would mean the removal of a “significant roadblock for cryptocurrency,” says Wang, since U.S. firms and investors are operating without clear guidelines at the moment.

Reasons why Regulation could be a good thing

1. More Stability in the Market

Greater regulatory guidance, if well targeted, could help reduce speculation among crypto assets. Less speculation can lead to higher investor confidence, which could draw in more long-term investors who have so far said no thanks to a highly speculative, volatile crypto market.

2. Increase in Investor Protection and Confidence

Crypto investors currently have little to no protection in the market, as there is no regulatory framework in place to ensure protection of assets.

Most of the trading that goes on in the crypto world today is not regulated by any federal authority, and that’s a big gap,” says Massad. “That means that investor protection is much, much weaker on these big exchanges than it is in our securities markets or our futures market.”

Timothy Massad, former chairman of the Commodity Futures Trading Commission and a senior fellow at the Kennedy School of Government at Harvard University.

3. Safer Crypto Ecosystem

Crypto has been described as the “Wild West” by SEC chair Gary Gensler due to lack of regulation in the industry. The lack of laws and policies over this burgeoning area has created an opening for widespread fraud, scams, rug pulls, and market manipulation.

Current global regulation

Lets take a look at current regulation across the globe...

United States

Cryptocurrencies: Not considered legal tender

Cryptocurrency exchanges: Legal, regulation varies by state

Cryptocurrency exchanges are legal in the United States under the watch of the Bank Secrecy Act (BSA). In practice, this means that cryptocurrency exchange service providers must register with FinCEN, implement an anti money laundering (AML/CFT) program, maintain appropriate records, and submit reports to the authorities.

It places virtual currency exchanges in the same regulatory category as traditional money transmitters and applies all the same regulations.

Future Regulation: The US Treasury has emphasised an urgent need for crypto regulations to combat global and domestic criminal activities. In December 2020, FINCEN proposed a new cryptocurrency regulation to impose data collection requirements on cryptocurrency exchanges and wallets. The rule is expected to be implemented by Fall 2022, and would require exchanges to submit suspicious activity reports (SAR) for transactions over $10,000 and require wallet owners to identify themselves when sending more than $3,000 in a single transaction.

Canada

Cryptocurrencies: Not legal tender

Cryptocurrency exchanges: Legal, required to register with FinTRAC

Cryptocurrencies are not legal tender in Canada but can be used to buy goods and services online or in stores that accept them. Canada has been fairly proactive in its treatment of cryptocurrencies, primarily regulating them under provincial securities laws. Canada brought entities dealing in virtual currencies under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) as early as 2014, while in 2017 the British Columbia Securities Commission registered the first cryptocurrency-only investment fund.

Future Regulations

In 2021, the Canadian Securities Administrators (CSA) published guidance for crypto issuers that own or hold crypto assets. The guidance set out regulatory expectations for disclosures that crypto issuers must provide about how they protect their assets against loss and theft, including the need to disclose relevant risk factors.

There are no signs of significant additional legislation on the horizon. The Canadian government will likely assess the effects of the most recent changes before writing additional legislation.

Scallop have been granted a Canadian banking license to operate within the region

Regulation in China

Cryptocurrencies: Not legal tender

Cryptocurrency exchanges: Illegal

The People’s Bank of China (PBOC) banned financial institutions from handling Bitcoin transactions in 2013 and went further by banning ICOs and domestic cryptocurrency exchanges in 2017

Exchanges

In June 2021, China banned all domestic cryptocurrency mining, and followed-up by outlawing cryptocurrencies outright in September 2021.

Future Regulations

There’s no indication that China intends to lift or loosen its ban on cryptocurrencies anytime soon but recent statements by government officials endorsing blockchain technology have led to speculation that China intends to become a leader in the digital currency space.

India

Cryptocurrencies: Not legal tender

Cryptocurrency exchanges: Regulations being considered

Cryptocurrencies are not legal tender in India and the status of exchanges remains murky, as new regulations are being considered. Although there is currently a lack of clarity over the tax status of cryptocurrencies, finance minister Bhagwat Karad indicated in February 2022 that cryptocurrency transactions could face a 30 percent tax.

Cryptocurrency exchange regulations in India have grown increasingly strict. In 2018 the Reserve Bank of India (RBI) banned banks and any regulated financial institutions from “dealing with or settling virtual currencies.” The sweeping regulation prohibited the trade of cryptocurrencies on domestic exchanges and forced existing exchanges to close down. In 2020, however, in a landmark decision, the country’s Supreme Court ruled that ban unconstitutional and relented, allowing exchanges to reopen.

The Indian Minister of State for Finance suggested that a new cryptocurrency bill – known as the Cryptocurrency and Regulation of Official Digital Currency Bill – would be forthcoming. While the Indian government has made its opposition to private cryptocurrencies clear, in November 2021, the Standing Committee on Finance met with representatives of crypto exchanges and concluded that cryptocurrencies should be regulated rather than banned.

What does this all mean for cryptocurrency

Projects will be under increased scrutiny to operate within a regulatory framework. This is good for the investor as it offers protection. Decentralisation does not mean lack of accountability. Privacy coins have their use, and we applaud them as a technology, however when we include regulation into the space, it is projects that have moved proactively within that framework that will be able to succeed. Scallop is preparing for that future, everyday.

New regulation also has the potential to protect long-term investors, prevent fraudulent activity within the crypto ecosystem, and provide clear guidance to allow companies to innovate in the crypto ecosystem, according to Aaron Klein, a senior fellow in economic studies at the Brookings Institution, focused on financial technology and regulation.

“In reality, you kind of have three possibilities: no regulation, bad regulation, good regulation,” Klein says.

Learn more about Scallop here