Current Status and Outlook for Cryptocurrency Regulation by Hongcheng Chen, Creative Investment Research

On April 1, "The People’s Bank of China (PBOC)’s Institute of International Finance" identified "cryptocurrencies as a top priority for 2018,": citing the potential systemic risk that "widespread retail investment into cryptocurrencies" posed to the Yuan. The article below summarizes the Mandarin-language only report.

Status and Outlook

(1) Status Quo

Global cryptocurrency is growing explosively. As of March 10th, 2018, there were more than 1,500 types of cryptocurrency, totalling $389.1 billion in value. The market value for the top 10 cryptocurrencies stands at $321.1 billion and accounts for 80% of the total cryptocurrency market value.
A wide variety of institutions are involved in the issuance of cryptocurrency. Private sector players include financial institutions and large e-commerce platforms. On a national level, Tunisia, Senegal, Ecuador and Venezuela have issued legal cryptocurrency.
Existing problems: the issuance of cryptocurrency is not guided by a clear credit foundation and thus its value is exposed to huge volatility. This negatively affects the cryptocurrency financial marketplace; some fear that anonymity means the currency may be used for money laundering or other financial crimes related to a desire to avoid monitoring and tracking by regulators; the computer based nature of cryptocurrency means it is exposed to a hacking risk and a risk of being stolen due to an immature cryptocurrency system infrastructure; insufficient and inefficient monitoring and regulation.

(2) Global Regulation of Cryptocurrency

There is movement to clarify the legal status of cryptocurrency through legislation. Japan legalized cryptocurrency as a means of payment on May 25th, 2016.
Several countries seek to regulate cryptocurrency trading though agents (such as exchanges). The Financial Service Agency of Japan has granted licenses to 16 cryptocurrency exchanges. South Korea regulates cryptocurrency trading through the banks providing account service to exchanges.
Taxes on cryptocurrency trading and exchanges. The National Tax Agency of Japan has imposed a capital gains tax on cryptocurrency trading. South Korea imposed a tax of 24.2% on Exchanges.
Strengthening global cooperation. Finance Ministers in Germany and France have called for a discussion on establishing global cryptocurrency regulation at the G20 Summit this year.
Research and development of cryptocurrency. At the Gold and Silver Currency Teleconference on March 28th, the People’s Bank of China implied that they will focus on both rectification and, research and development of cryptocurrency this year.

(3) Recommendations for Government

Specify the essential nature of cryptocurrency through legislation. Governments should define the nature of cryptocurrency from the legal perspective.
Strengthen regulatory cooperation and establish a global cryptocurrency regulatory framework. Governments should explore the establishment of a global cryptocurrency regulatory framework, share cryptocurrency transaction information, fight crime and protect consumers.
Actively participate in the global governance of cryptocurrency. Governments should take the initiative to get involved in cryptocurrency governance and strive to play a decisive role with respect to cryptocurrency development and regulation.

Translation by Hongcheng Chen, Creative Investment Research. Edited by William Michael Cunningham.

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