While the US is lagging behind for the time being, Europe and Asia have seen the emergence of specific frameworks for crypto, while the UK has chosen to regulate based on existing financial regulation.

In the wake of the industry's growth in recent years, a host of regulations have sprung up around the world, prompting players to institutionalise.

Here's a look at what's expected in the world's main regions.

The great blur in the US

US-based players are desperately seeking a crypto-specific regulatory framework. Despite repeated calls from industry leaders such as Coinbase for several years, no political agreement has been reached, particularly at congressional level.

A glimmer of hope appeared in March 2022 with the signing of an executive order by President Joe Biden, initiating a reflection between the authorities and the crypto ecosystem. However, the situation has stalled and even worsened after FTX's fall in November 2022.

In the absence of a specific framework, the Securities and Exchange Commission (SEC) applies existing laws relating to financial securities, including the very old "Howey" test dating back to 1946.

Recently, several industry heavyweights, such as Coinbase, Kraken and Uniswap Labs, received a "Wells notice", a preliminary warning informing of the charges the regulator is considering bringing against them. "Very often, this type of warning is followed by coercive measures", explains Morgane Fournel-Reicher, a lawyer at Herbert Smith.

"Without a specific framework, the sector would be virtually condemned de facto and subject to very heavy and inappropriate regulatory obligations", she points out.

Faced with the SEC's inflexibility, some players, such as Coinbase, have filed a lawsuit to demonstrate the agency's incompetence and bring about the emergence of a specific regime. Coinbase has recently been joined by ConsenSys, creator of the MetaMask wallet, and Uniswap Labs. The outcome of these cases could prove decisive.

The other major issue concerns the regulation of stablecoins, largely driven by Circle, issuer of the USDC, the second-largest stablecoin on the market ($33 billion).

Last February, the US Treasury and the White House called for specific regulation of these assets through Treasury Secretary Janet Yellen.

However, opinions remain sharply divided in Congress on whether and how to regulate stablecoins.

"Last summer, the Republican-led House Financial Services Committee passed a bill to create a federal licence. But it got little support from Democrats and its passage by the Senate Banking Committee remains uncertain, even if the House approves it", analysis Timothy G. Massad, former CFTC chairman under Barack Obama.

With the presidential election looming (November 2024), a crypto non-profit has launched a new political action committee (PAC) to raise money from its 440,000 members to fund crypto-friendly politicians.

Europe: after MiCA, decentralised finance's turn?

Since 29 June 2023, Europe has been the first region in the world to have a specific regulatory framework for cryptos with MiCA (Market in Crypto-Assets), aimed at harmonising the rules applicable to the issuance of crypto-assets and associated services within the European Union (EU).

One of MiCA's main measures is to make it compulsory to be licensed as a digital asset service provider, which already exists in some countries such as France (the so-called PSAN).

Regulations on stablecoins will come into force on 30 June next year, while the general framework will apply from 30 December 2024, followed by an 18-month transitional period after which authorisation will be mandatory to operate.

However, MiCA is far from having resolved all the issues. Consultations are underway to transpose the text into national law and specify the obligations of the players involved. "There is still a lot of work to be done," confides an industry lawyer.

In particular, the implementation of MiCA with regard to stablecoins is still unclear, as these are to be treated as electronic money. "If this is the case, their use by individuals will be extremely restricted," explains Marina Markezic, co-founder and executive director of The European Crypto Initiative.

Once these issues have been resolved, Europe will have to work on an evolution of MiCA, as its framework does not yet include decentralised finance (DeFi) or NFTs. Currently, certain players can benefit from a "DeFi exemption", but its contours remain vague.

In 2022, the President of the European Central Bank (ECB), Christine Lagarde, called for a "MiCA II", this time including DeFi. For the time being, no legislative steps have been taken, with thoughts remaining at the consultation stage.

The situation should become clearer on December 30 when the European Commission publishes a report on decentralised finance. "The conclusions of this report will necessarily influence future regulation specific to DeFi. But for the time being, it is highly unlikely that a clear text will emerge in the coming months", analyses Marina Markezic.

The UK, a "pragmatic"

"Unlike Europe, the UK has opted for a gradual approach, starting by regulating advertising and stablecoins without establishing a complete framework", explains Ben Regnard-Weinrabe, a lawyer at Allen & Overy. "It's an approach that is intended to be more pragmatic," he continues.

Since October, companies offering crypto-related services to individuals have had to put in place "clear" disclaimers and ensure that advertising is "fair and not misleading".

"The UK is tending to incorporate crypto into existing legislation. Regulationally, the British are more reactive than Europe, particularly because the FCA (Financial Conduct Authority) can initiate legislation, unlike the AMF (Autorité des marchés financiers) in France," explains Anne-Sophie Cissey, head of legal and compliance at Flowdesk.

To operate in a regulated manner, crypto companies must obtain a licence relating to the existing financial activity to which they could be assimilated, which can prove to be a double-edged sword.

In the absence of a specific framework, many companies remain reluctant to set up in the UK. Nevertheless, things could change in the coming months," confides an entrepreneur in the sector.

On 8 May, at the Digital Crypto Asset Summit organised by the Financial Times, the UK Treasury's economic secretary expressed a desire to "quickly" introduce new legislation to provide greater legal clarity regarding stablecoins and staking.

Singapore and Hong Kong, the forerunners in Asia

While China used to be a hotbed of crypto activity, it drastically tightened regulations in June 2021 by banning cryptocurrency trading, leading to the exodus of many businesses in the sector, including bitcoin miners.

Since then, some countries such as Singapore have adopted a regulatory framework specific to cryptocurrencies, requiring players operating as brokers or exchange platforms to obtain a licence.

"Singapore stands out for the fact that the crypto derivatives business is unregulated, which explains why the city-state now concentrates almost three-quarters of the global market," explains Anne-Sophie Cissey.

Logically following China's lead, Hong Kong has long adopted strict regulations on cryptos. Recently, it has relaxed its stance by creating a licence for exchange platforms and opening up crypto trading to individuals. Another sign of openness is the recent approval of several Bitcoin and Ethereum Spot ETF applications.

"On the other hand, South Korea and Japan, which issue licences to crypto players, are still fairly closed on the subject for the time being," says Anne-Sophie Cissey.

This analysis does not constitute investment advice. It has been written without taking into account your personal circumstances, including your financial situation, risk profile and investment objectives.

Before investing in any product, investors should fully understand the risks involved and consult their own legal, tax, financial and accounting advisors.