Starting from March 1, the law SF0125 on “Digital Assets” enters into force in the U.S. state of Wyoming, which has delighted many supporters of cryptocurrencies. As early as the beginning of December 2018, DeCenter found out that a group of experts was gathering in Wyoming to take part in drafting the cryptocurrency law. On December 4, DeCenter sent a letter to the organizers, expressing support for their undertaking. Four days later, a response was received from Steven Lupien, executive director of the Wyoming state working group on changing the rules for the treatment of special types of assets, in which he expressed gratitude for the solidarity.
Next was work with the state Division of Banking, the officials of which had to prove the need to regulate this area, because, for example, their colleagues in the state of Pennsylvania had concluded that cryptocurrency was not money by that time. And although such a legal turn could cause discouragement, it’s turned out to be a tremendous benefit, as Penn’s Department of Banking and Securities ruled that trades in digital assets did not need licensing and were not subject to any laws describing activities in financial assets markets, including securities trading. Cryptocurrencies were recognized as meaningless “candy wrappers,” and if from a moral perspective, it could be insulting, in fact, it gave greater financial freedom to use them.
In Wyoming, they decided to go another way to ensure that cryptocurrencies were recognized as money. The main advantage of this approach is to force banks to work not only with cryptocurrency derivatives. Moreover, the issue of the emergence of the main derivative financial instrument for Bitcoin—an exchange-traded fund—is still vague, even though the Winklevoss brothers made the fight for it the primary goal of their activities. Meanwhile, according to the law adopted in Wyoming, banks will not open cryptocurrency deposits but will be able to provide custodial services for such assets. It is yet unknown, however, whether such a service will be in high demand.
The efforts of the Wyoming working group, which included a large number of experts and specialists, including representatives of both the Democratic and the Republican parties, were crowned with success. As a result, on January 31, the State Senate passed the bill with 28 votes in favor. One senator was “against,” and one took abstained. As a result, in the spring, Wyoming will divide all digital assets into three groups:
The first is “digital consumer assets,” which are treated as another kind of intangible assets.
The second is “digital securities,” which are subject to relevant legislation.
The third is “virtual currencies,” or intangible assets that are subject to the right of personal private property and which are treated as money.
In Pennsylvania, Cryptocurrencies Are “Candy Wrappers,” but the SEC May Still Be Interested
Is the legislative result in Wyoming a victory, or is it better to prefer the option adopted in Pennsylvania? There, cryptocurrencies are “candy wrappers” of no interest to regulators, which can circulate as they please until the SEC suddenly decides that some of these “candy wrappers” are securities. And this post-fact recognition promises fines for the issuers of such financial instruments and the need to return the funds raised, just as it happened with the Paragon Coin and CarrierEQ ICOs, and can also occur with the Kin tokens.
The Australian Treasury is developing its own rules regarding ICOs, under which cryptocurrencies will be allowed, but all of them will be recognized as securities, not money. At the end of January, the Treasury drew attention to the fact that Wyoming was exempting cryptocurrencies, which are used only for buying and selling goods and services and are not investment instruments, from the securities laws.
A Year Ago, Germany Recognized That Cryptocurrencies Are Money
Both legislative approaches have their own characteristics. If we talk about the concept that “cryptocurrency is money,” then it has existed since last year. On February 27, 2018, a document appeared on the website of the Ministry of Finance of Germany, in which it was recognized that once the fiscal authorities of the country charge value-added tax (VAT) when paying for goods and services with Bitcoins, Bitcoin is recognized as cash. At the same time, the officials of the German financial department referred to the decision of the Fifth Chamber of the European Court of Justice from October 22, 2015, which states that if some assets act as financial intermediaries in transactions and at the same time VAT is charged, this means that these assets fulfill the critical function of money. Almost a year has passed since the decision of the German financiers; however, in terms of the distribution of cryptocurrencies, this state does not show dynamic growth, as there are only three crypto ATMs in the country allowing the purchase of cryptocurrencies.
Regulators Fear Even the CBDC
We have to admit that the way Wyoming and Germany have gone in recognizing cryptocurrencies as money is an exception to the rule. For the regulators, there may be a risk of losing confidence in fiat if it turns out that cryptocurrencies are more efficient than banknotes and coins. That is why even the idea of launching the CBDC, or state crypto coins issued by a banking regulator, has received a negative opinion from the South Korean central bank on February 7. On October 20, 2018, the head of the Bank of Japan reached the same conclusion. In both cases, this does not prevent cryptocurrencies from being traded, or even used as a medium of exchange in thousands of stores.
At the same time, the authorities of these two countries relate positively to stablecoins tied to national fiat currency, seeing them as merely digital “prints” of the money they continue to control. Moreover, stablebcoins issued not by the state, but by private organizations, in a sense, support the reputation of fiat, giving it a more modern, “digital” image, while taking into account the limited area of its circulation.
At the state level, such tokenization will be too ambitious and raise the question of the future of modern money, a matter that not many regulators are ready to solve. A similar idea exists in the Royal Bank of Sweden, but even there, they are not ready to take a step towards CBDCs. Meanwhile, the transition to fully state cryptocurrencies with the withdrawal of any previous fiat from circulation opens up additional opportunities for the state to increase the collection of taxes to the budget. From a legal perspective, the attitude toward cryptocurrencies often becomes a practically insoluble problem, as the adoption of a position by the lawmakers means not only advantages and disadvantages for the cryptocurrency community but also risks and opportunities for any state.
Leaders in Cryptocurrency Legal Regulation Are Countries under the U.S. Sanctions
Particularly intensive work is being done on the legal registration of the existence of cryptocurrencies in the countries that are under sanctions. Paradoxically, the severe economic situation in Venezuela, but not so unequivocally difficult, has led to what is not found in any country of the world, as the right to pay taxes in any cryptocurrency is legal, and their use for the purchase of goods and services is allowed. Since the beginning of the year, fiat cash has practically ceased to exist in the country, and the state is issuing cards to a growing number of Venezuelans who receive budgetary funds in the Petro state cryptocurrency as both the minimum social benefits paid to everyone and the salaries of civil servants.
Another country under sanctions, Iran, launched two state cryptocurrencies but prohibited to use (not buy and sell) other cryptocurrencies as a medium of exchange for goods and services.
The Russian ruble being the only legal tender in the country is the position not only of the Central Bank of the Russian Federation but also of the political leadership of Russia. This thesis is fundamental for determining the legal fate of cryptocurrencies in the country. At the same time, Russia is preparing to actively launch cryptocurrency sandboxes, within the framework of which transactions in crypto coins will be allowed for trial purposes.
No Country Considers a Total Ban on Crypto
As an analysis of the legal regulation of cryptocurrencies in various countries shows, it is most often built not on the principle of a total ban or total permissiveness but on the basis that “this thing is possible, but that one is not.” This makes it impossible to build a standard, intergovernmental approach to cryptocurrencies. But what makes these methods interrelated in all countries, except Venezuela, is the desire to save fiat from competition with cryptocurrencies that would become critical for the supply monopoly. Caracas, in fact, rejects this monopoly, since it allows the broadest possible competition for Petro from any crypto coin.
The state explains this (both to itself and Venezuelans) by intending to radically break off relations with the U.S. dollar, promoting the idea at the OPEC level of selling oil by cartel members not for the U.S. national currency, but for cryptocurrencies. Thus, the de-dollarization within the framework of one country became impossible without, at least hypothetically, creating severe risks of reducing the demand for the main fiat currency in the world, the U.S. dollar.
The reaction of the American authorities is not difficult to predict, as they intend to defend the U.S. dollar by fighting the ideas that are really risky for it, as is being done by any state when it comes to protecting its fiat. In all cases, except for Venezuela’s access to OPEC, cryptocurrencies now do not constitute any real competition for fiat money. Hence, we can expect that, to some extent, the majority of countries around the world will have favorable legislation toward cryptocurrency until the latter becomes commonplace.