Listen to the Article: 2023 Forecast - Crypto / Virtual Assets to be Further Reined in Globally

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It has been a long debated topic on whether we should let the cryptocurrency community grow as wildly as it can or bring it into stringent regulations. Fazzaco presented the feature, "Cryptocurrency Regulations: A World Tour"​, in the middle of this year, where we shared a number of our thoughts on how virtual assets are regulated in different countries of East Asia, North America, the Middle East and North Africa, the EU and Southeast Asia.

The year of 2022 has seen crypto disasters one after another from Celsius to Three Arrows, and the catastrophic FTX crisis​ happened in the second half of the year revealed an unprecedented lack of trustworthy financial information, which once again hit the investors' confidence hard. As a result, people started talking about will there be any changes to crypto policies next year. Because it is now quiet obvious that the entire community would soon be faced with the life-or-death question instead of whether we should regulate it at all, if we just let things continue their course unrestrained.

Intensifying Regulations Have Been the Trend Since the Beginning of 2022

A global wave of research, definition, consultation, negotiation as well as legislation has been happening since the beginning of 2022. However, most of the moves so far, including policies, measures, services and definition on relevant assets, are still heavily fragmented geographically.

In March, Japan announced to plan to amend its Foreign Exchange and Foreign Trade Act to bring crypto exchanges under the purview of laws that govern banks. The proposed amendment is being carried out to prevent sanctioned countries from taking evasive actions using digital assets. Singapore's parliament passed an omnibus bill​, the Financial Markets and Services Bill, on April 5 that would expand the powers of its primary market watchdog and introduce tighter regulation for crypto companies in the country. Also, the European Union is nearing completion of the new Markets in Crypto-Assets Regulation (MiCA), which will, upon implementation, will further narrow the gaps among different European financial regulators and legislative bodies in terms of crypto regulations. On the other hand, Dubai officials are putting up the world's first authority completely concentrating on virtual assets known as the Dubai Virtual Asset Regulatory Authority (VARA)​. FINMA, the Swiss watchdog, has integrated one of the most mature regulatory framework for digital assets, allowing market participants to receive assurance on the legal and regulatory status of their projects and intended activities.

Similar actions are seen, too, in countries and regions such as Kazakhstan, Uzbekistan, France, the United Kingdom, and Hong Kong etc.

Regulators and Authorities Are Sharpening Knives

In the aftermath of various crypto exchange collapses, regulators and legislators around the world began to collect the pieces behind the incidents in an attempt to find out why. The Financial Services Committee of the US House of Representatives held a hearing in early December about FTX. William Timmons, an SC Rep. Congressman, questioned John Ray III, the newly appointed CEO to take care of FTX, because the time FTX went down was too "bizarre", hinting a possible dark operation behind. Meanwhile, the Financial Industry Regulatory Authority (FINRA) also started looking into crypto marketing to prepare for possible new policies.

It is now the top priority for authorities of countries to prevent another FTX collapse. Take the UK as an example, the deputy governor of the British central bank urged the government to continue to regulate these activities and organizations, so that the new stablecoins may receive the same level of scrutiny like conventional bank money. The Digital Commodities Consumer Protection Act of the U.S Senate Agriculture Commitee seeks to safeguard consumers from another Celsius or Voyager by imposing rigorous controls on their assets. If it goes ahead, the Commodity Futures Trading Commission (CFTC) would oversee its execution and litigate any who disobey the regulations. There are voices that disagree, though, claiming that doing so makes it difficult to operate decentralized finance (DeFi) protocols.

Forecast of 2023

The US government released a report on stablecoins earlier this year advocated stablecoin legislation as well as the idea of a digital dollar. So, the imminent year of 2023 could finally see some progress. The bill would grant the Federal Reserve the authority to license stablecoin issuers. If it is the Federal Reserve, stablecoin issuers might borrow money from the central bank or obtain FDIC insurance coverage.

The new MiCA of EU, which is in the final stages of making, is said to be even more significant because it covers a more comprehensive range from anti-money laundering, environment, corporate reporting and to consumer protection. Stablecoin issuers are required to hold sufficient deposits to avoid a potential liquidity crisis, while crypto miners are also required to disclose their power consumption. More importantly, all crypto exchanges in the EU will be managed under a single financial regulator.

Final Thoughts

While there are still obvious differences in cryptocurrency regulations across countries, current trends suggest that much of the world is moving towards a more regulated framework. In particular, the EU's new MiCA structure represents a paradigm shift in how digital assets will be regulated in the new era. Therefore, companies involved in the crypto community need to take actions as soon as possible to comply with the new regulatory measures to be introduced next year and in the future.