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Why most countries are unable to make a firm decision on crypto

Crypto classification dilemma: is it an asset, a property or a commodity?
Regulators around the world have come up with various definitions of cryptocurrencies. But there is no consensus, even among large economies, on how to deal with decentralized virtual currencies, which are seen as posing a risk to financial stability and impacting cross-border transactions.
Policy advisers and legal experts say most countries are unable to formulate virtual currencies policy because there is no precedent apart from bans, which have been largely ineffective. The growing popularity of crypto has caught the attention of lawmakers because it could undermine state oversight over monetary policy, capital flows, and illicit activity if left unchecked.
While only one country – El Salvador – has recognized bitcoin as legal tender, nine others, including China, have banned crypto completely. According to a Law Library of (US) Congress report published in November last year, 42 countries like Bangladesh have banned it “implicitly”, meaning that banks are prohibited from dealing directly or indirectly with crypto and that crypto exchanges are also prohibited.
“The lack of consensus on the regulation of crypto is mainly due to the ambiguity over whether to treat crypto as a ‘currency’ or an ‘asset’. Most people use it as a speculative investment, ”said Probal Bhaduri, managing partner at Lumiere Law Partners. He added that lawmakers around the world are also struggling to understand the technical aspects of crypto.
“Classifying crypto as a commodity can combat market and compliance risks, but not illicit activity, financial stability, systemic risks and capital flight,” said a report from Policy 4.0, a think tank founded by blockchain expert Tanvi Ratna.
In the United States, some states view crypto favorably, but there is no federal regulation. For taxation purposes, crypto has been classified as “owned” since 2014. The derivatives regulator CFTC has declared crypto to be a “commodity,” while the market watchdog SEC has made no definitive statement on the. crypto processing.
The Indian government has yet to confirm its point of view, as not all wings are in sync on the issue, leading to postponing the introduction of the bill at least until the next session of the Parliament. The RBI called for a complete crypto ban because it said partial restrictions would not work. Sebi chief Ajay Tyagi has asked mutual fund companies not to invest in crypto-related assets until the government presents a policy.
The Policy 4.0 report said that “making laws on paper and expecting full compliance is infeasible for technology that can easily bypass controls.” The report cites examples from South Korea and China, where strict regulation and ban, respectively, have not been fully effective.
“As enforcing the bans is both difficult and impractical, countries should seek to establish strong regulatory frameworks on cryptocurrency and educate investors about the risk,” said Nitin Sharma, senior partner at Lumiere Law. Partners. According to him, the low maturity of investors and the susceptibility to fraud and concerns related to terrorist financing and money laundering will be among the key factors when dealing with crypto.
International organizations like the IMF and WEF have noted that while crypto can help make cross-border payments efficient and improve financial inclusion, – also a reason for its popularity in emerging economies – its operational and systemic risks mean that regulation must be on the global agenda. .
An IMF report in October said even bank deposits and loans were threatened by crypto.
A WEF report in September listed four ways countries can handle crypto: “wait & see” like Brazil, a balanced approach like Singapore and the EU, comprehensive regulation like Switzerland and Japan, and restrictive methods like Turkey and Nigeria.
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