Crypto Regulations in 2021: What to Expect in EU and Overseas? 

The digital asset industry has generated significant interest over the past decade, grabbing the attention of leading hedge funds and even causing the most conservative and largest banks to sharply change their attitude toward cryptocurrencies.

This field continues to attract more retail investors, and the corporations are coming up big time. Under such circumstances, the topic of legal hurdles seems to be infinite. We’ve seen that the early days of digital assets had turned into the Wild West. Many existing crypto exchanges are still operating in the grey regulatory landscape, which adds a layer of uncertainty regarding the future. However, as Bitcoin and other assets experienced a sharp rise along with the decentralized finance field, the whole crypto industry came under the radar of watchdogs, which will surely empower stricter laws for the third decade of the 21st century. What will this mean for users in different countries? Is there a better approach? Let’s review the problem step by step.

Challenges of the Digital Money World

The Internet is full of exciting stories and horrific revelations about worldwide fraud schemes, exchanges hacking, and Hollywood-inspired exit scams initiated by fraud masterminds. Losses of millions of dollars became normal due to numerous flaws in security protocols and the imperfectness of the currently existing legal system, which is often unable to evaluate the importance and impact of crypto on society.

Despite the number of crypto adopters and the growing number of Bitcoin ATMs, many still do not understand crypto. Sometimes, it may seem that this market was created with only the intention to spawn a new class of pyramid schemes and bigger bubbles than dotcoms ever were.

In the early days of blockchain and Bitcoin, most exchanges existed in a grey area, having relatively low volume and weak security measures. With the advent of DeFi, the trading volume grew significantly but still can’t match the traditional institutions. Leading decentralized exchange (DEX) platform Uniswap continues to lead the sector as it nears an average of $1 billion a day trading volume for January 2021. However, it’s still quite a small amount when compared to the New York Stock Exchange volumes, literally representing some 2% of NYSE as the new crypto normal. Anyway, it’s essential to realize that half a decade ago, the whole idea of P2P trades sounded more like a dream.

The digital asset market is currently in its infancy, and it’s impossible to change that in just one decade – due to Deutsche Bank’s research, digital assets are here to stay as it will gain mainstream traction, becoming one of the primary payment methods by 2030 and may even replace fiat money.

Starting New Decade in Global Monetary Politics

There is no unified vision in the legal question “How to create or shape the global regulation for cryptocurrencies?” Countries throughout the world used to rely on very different methods – from a total ban following an example by China or Iran to the creation of tax crypto heavens, where many startups flourished – such as what Malta did.

However, last year was marked by a serious uptake to shape more rules for the cryptocurrency field since many governments sped up the digitization process and started to create cryptocurrencies tied to local assets. Central Bank Digital Currencies or CBDCs represent the most realistic approach to step into the new chapter of finance, and China has been successful with its Digital Yuan tests.

European countries always lagged in acceptance of innovations, and there has been no exception in this rule here. Christine Lagarde, the ECB director, recently stated that it would take up to 5 years to issue and accept digital euros!

The United States, in turn, prioritized the digital dollar initiative and started to craft regulations not to lose the digital money competition to China. The country has many crypto users and even many adopters among officials – the mayor of Miami recently made the headlines by advocating to do business via Bitcoin investing.

Due to ongoing powerplays and change, the new administration appears to be crypto-friendly and interested in the new class of assets. Will this result in stricter regulations and challenges? The US political arena and its shifts are an important marker for the world crypto industry development. At the start of 2021, the US has updated the cryptocurrency Anti-Money Laundering/Combating the Financing of Terrorism laws. In December 2020 the Senate approved the National Defense Authorization Act.

Next, the United States Financial Crimes Enforcement Network, or FinCEN, has proposed a series of new regulations applying to financial institutions dealing with digital currencies, such as Bitcoin. It is important to realize that these proposed regulations are now delayed due to extended periods of public commenting.

There is no common ground in these advances, but there is also no doubt that those who step first in the digital environment of blockchain-powered finance have more chips to win the round in the long-term game.

In the meantime, on a global level, more nations are looking to diversify dollars. It might serve as an uplifting moment for crypto because it’s an excellent anti-inflationary alternative to the US dollar.

Speaking of the most controversial private projects, it’s safe to assume that the highly expected arrival of Diem (formerly known as Libra), a long-awaited crypto initiative led by Facebook, which will bring certain benefits to this field. However, the seemingly bright future might be darkened by regulators as Diem and other so-called “global stablecoins” face backlash from governments of major countries that are now worried about their fiat money-based financial system and are working on their own central bank digital currencies.

When it comes to discussing potential, it’s evident that everything new is regarded by the banks as a possible disruption technology competing over their dominance. Despite more than 8,000 cryptocurrencies in existence nowadays, even the top asset, Bitcoin, is often misunderstood. Many people do not know the pros and cons of the crypto market, can’t evaluate the risks properly, and imposed regulations sometimes make it harder for developers to reshape the way we used to interact with money. There is a lot of work to be done when it comes to educating the population about this emerging type of investment. This is clearly evidenced during the recent United Kingdom survey regarding attitudes to cryptocurrency, which indicated that more than 30% of respondents are curious about investing in digital assets. This can be tricky stuff.

Assisting in Climbing the Curve

However, during today’s global uncertainty and sluggishness of regulatory framework development, private companies are determined to steer clear of grey areas and be compliant to the maximum extent while serving their user base as effective on-ramps into digital finance. At the moment, some experts are worried that MiCA (Markets in the Crypto-Assets framework, which defines cryptocurrencies and stablecoins) will hamper the existence of the DeFi market in Europe since it aims to provide a single licensing framework for crypto projects across all the EU member states by 2024.

“There’s a straightforward thought I need to clarify: MiCA Regulation is creating the foundation for crypto-based neo-banking. It opens the door to global finance for many companies, including institutional players. For STEX, the answer is obvious – we stay regulated and aim to comply with this initiative. With full respect to our competitors’ decision, we’ll gladly take care of their conscious customers who will prefer to stay protected if they act contrary,” noted Vadym Kurylovych, founder of STEX exchange.

Regulations should definitely be considered a good thing by the advancing crypto community. The current advantages of regulated exchanges are numerous and evident. Such platforms are free of the most important risk – clients will not lose the money if the exchange is hacked or compromised: the funds will be refunded and well-protected. The situation that the exchange will use an exit scam scheme is close to zero.

Next, a regulated exchange will not be suddenly shut down by the authorities (taking the infamous BTC-E case into account and several other examples). Finally, while trading on a regulated exchange, the user can be sure that he is not helping money laundering or financing illegal activities such as terrorism in any way.

One of those regulated exchanges focused on providing its users’ with the highest safety measures is STEX platform, fully compliant with all European AML standards. This EU-based exchange supports an extensive set of tools and numerous trading pairs to boost the trading experience. Users can exchange fiat to crypto or vice versa with a few swipes on their mobile devices.

For now, the new age of digital finance is regarded as more problematic than beneficial. The superiority of blockchain is often underestimated and questioned as world governments see more danger coming into existing banking systems.

Is there a chance to find a way that satisfied both parties? The possible path is to allow innovation-driven developers to do their job as they must be encouraged by well-established institutions to further lead the digital transformation. Regulations need to help remove stumbling stones by allowing startups to access the lucrative crypto markets easily, fostering technological innovation along with competitiveness within Europe and the world, and carefully choosing the instruments to educate the local populace on cryptocurrencies.