Navigating Cryptocurrency Regulation and Compliance: Impact, Challenges, and Opportunities for Investors
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Navigating Cryptocurrency Regulation and Compliance: Impact, Challenges, and Opportunities for Investors

Regulatory changes are momentous for cryptocurrency investors, as they can have a radical effect on the currency’s valuation. Bitcoin and Ether, for example, have fallen significantly after Chinese regulators announced the outlawing of initial coin offerings (ICOs) in September 2017. This provided the opportunity to short trade for those in the know, and in February 2018 there were even deeper declines when the country announced restrictions on virtual currency mining.

Here, we’ll look at the key regulatory and compliance issues that investors need to know about, as well as the countries whose regulations are likely to affect the valuation of cryptocurrencies.

Cryptocurrency regulation

Governments have approached the regulation of cryptocurrencies from different approaches, even defining these assets in different ways. To date, digital currency regulation has focused on:

Consumer protection

Protecting consumers has been the first challenge for governments for two main reasons. First, because digital currencies are extremely volatile, and, second, because they were designed precisely to be outside the reach of centralized control. This means that the laws surrounding them could easily be ignored by anyone with an internet connection if they were not carefully designed.

To date, the solution most governments have taken is simply to warn consumers about the risks of cryptocurrencies, financial markets, and ICOs, rather than trying to implement a ban that would be difficult to enforce. A few countries (including Bangladesh, Qatar, and Bahrain) have legislated and made it illegal to use cryptocurrencies within their borders, although in practice this seems unenforceable.

Crime prevention

The second biggest challenge for governments has been to minimize the use of cryptocurrencies to finance illegal activities. This is an arduous undertaking, as payments can be executed anonymously through cryptocurrency networks, making it difficult to identify people buying or selling goods or services on the web.

Although many governments have yet to tackle this problem, a number have developed anti-money laundering and anti-terrorism laws to ensure that banks and other financial institutions rein in those who try to access cryptocurrencies through financial markets or withdraw money. cash.


Another challenge has been taxing, as governments want to ensure that they will receive additional income from the activities of individuals and companies. This has caused a divergence in the way cryptocurrencies are classified for tax purposes: some governments have defined them as foreign currencies and others as financial assets, for example.

This means that, depending on the jurisdiction and the entity collecting profits, cryptocurrencies may be subject to VAT, income tax, capital gains tax or corporation tax. Additionally, a minority of jurisdictions allow the deduction of losses.

The role of regulation in trading

Since regulation has affected the valuation of cryptocurrencies in the past, changes in it can provide profit opportunities for investors. A relaxation in countries that apply an absolute or implicit ban, for example, could increase the price of cryptocurrencies, as it would allow access to the market to buyers who were previously prohibited. A restriction in the regulation of a country, on the other hand, could lead to a drop in prices, since in principle buyers would be less willing or would find it more difficult to purchase cryptocurrencies.

Investors who want to take advantage of these price movements should pay attention to regulatory changes in this field. You can learn more about current legislation in other territories thanks to a recent report from the Law Library of Congress in the United Kingdom called “The regulation of cryptocurrencies around the world” (only available in English).

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