In July 2018, the small island nation of Malta became the first country in the world to establish a clear regulatory framework for cryptocurrencies and initial coin offerings. And with the second half of 2018 seeing the likes of Russia and India preparing specific national legislation for cryptocurrencies, 2019 is set to become the year in which crypto-regulation becomes more widespread, more formal, and more international.
This could open up new possibilities for the crypto industry as it becomes more legitimate, yet as the experts below informs, it could also close off some previously lucrative areas of activity.
More anti-money laundering regulation
At the very least, 2019 will be the year when strong AML (anti-money laundering) and CFT (combating the financing of terrorism) regulation will be laid down throughout the globe, reaching many of the nations that haven't already introduced such rules.
To a large extent, this worldwide push towards AML/CFT regulation for crypto will be driven by the Financial Action Task Force on Money Laundering (FATF), which is an G7-founded organization tasked with formulating (internationally adopted) policies related to money laundering.
"By June , we will issue additional instructions on the standards [for cryptocurrencies] and how we expect them to be enforced," said the task force's president, Marshall Billingslea, in October.
As Gary McFarlane – a cryptocurrency analyst at Interactive Investor – explains , this will largely be a positive step for the crypto industry, although it may potentially have negative repercussions for fans of privacy coins.
"The implementation of internationally agreed regulatory standards in line with the Financial Action Task Force would be an important step towards wider adoption of distributed ledger technology and cryptocurrencies," he says.
"The most professionally operated exchanges already abide those standards, so it is only the less well-resourced and cowboy operations that need to be worried."
"An exception to that would be privacy coins such as Monero and Verge, which may come in for special attention from the financial authorities, perhaps banning them from trading on exchanges in the authorities’ yet-to-be-formulated new regulatory framework."
In August 2018, the European Parliament’s Committee on Economic and Monetary Affairs published a proposal that would impose new laws for initial coin offerings (ICOs), so as to protect those "consumers [who] are at risk from fraudulent activity taking place in this market."
Similarly, the US is witnessing a move towards (lighter touch) ICO regulation, as Republican Rep. Warren Davidson unveiled plans this December to send a bill before Congress that would seek to create a separate asset class for tokens issued during ICOs.
While such moves would be beneficial for consumers, some experts suspect that ICO legislation could noticeably restrict the ability of new entrants to launch token offerings.
"[T]here may be a move internationally to regulate initial coin offerings and that could hurt places like Singapore which has become a hotspot for token sales," says Gary McFarlane.
It could also lead to security token offerings displacing ICOs, although that has the downside that it could prevent smaller projects from coming to market if they have to abide by the same stringent rules that apply in equity markets.
No international crypto tax?
The G20 group of counties met in Buenos Aires at the beginning of December, and it was reported that they agreed to work towards the establishment of an 'international cryptocurrency tax.' However, while considerable fuss has been made about this online, it's not certain that the G20's declaration focuses on crypto specifically.
"The G20 final communique doesn’t really add anything new," argues Gary McFarlane. "The statement in paragraph 26 of the communique talks about “the impacts of the digitalization of the economy on the international tax system”, but I think that has been misinterpreted by some as a call to tax cross-border transactions when in fact it is more a reference to finding solutions to global Big Tech corporations declaring their profits in low-tax jurisdictions."
Still, some people in the industry are nonetheless preparing themselves for the possibility of increased efforts to tax crypto, with Utopia Music's head of blockchain, Brent Jaciow, telling that the industry could still see tax regulation at the national level.
"2019 will be the year when governments globally take a serious look at cryptocurrency markets and put in place sensible regulation. Governments will likely focus on two core areas within the cryptocurrency markets; taxation and regulation surrounding offerings/marketing to the public.”
Effects on the industry
Given that governments around the world seem fixated on crypto's worst aspects, it's conceivable to think that the industry might be in for a tough ride in 2019 (and beyond). However, most people within the industry believe that the globe's authorities will stick to cracking down on actual crime perpetrated via crypto, and won't veer into a general crackdown on crypto.
"The focus is on preventing money laundering, terrorist funding, etc.,” David Braut – the chief communication officer of Aqua Intelligence – explains.
In short, they want to know the source of funds and the flow of funds. 2019 can see these crypto-regulations improve especially in this areas. While there is reason to believe future regulations might be restrictive, it is a good thing as there are rules to follow and an actual red line that is not to be crossed - which is lacking as of now.
So while some (bad) actors within the crypto industry will find that they can no longer take an easy ride to riches, most others will ultimately benefit from a clearer and more dependable regulatory regime. And hopefully, having seen that cryptocurrencies are becoming more safely policed, the general public will become more willing to use and adopt them.