On the path to legal clarity: crypto could become digital property in the UK 

When it comes to crypto regulations, we’ve learned one thing so far: digital currencies are notoriously difficult to regulate. The novelty and intricacy of the sector, the lack of accurate data, the decentralized nature of these assets, and the diverse protocols and structures employed by different cryptocurrencies are turning the development of crypto regulations into a Sisyphean endeavor for governments across the world. Additionally, crypto could become digital property in the UK, further complicating the regulatory landscape as authorities strive to adapt existing legal frameworks to encompass the unique characteristics of digital currencies.

There are some who think crypto shouldn’t be regulated at all as this would go against its core values and principles. Digital currencies were created with the purpose of circumventing government controls and intermediaries, putting power back in the hands of users. It’s also been observed that when lawmakers ramp up their efforts in this respect and try to implement and enforce new rules regarding activities and stakeholders in the crypto space, it usually has a negative impact on the Bitcoin and Ethereum price, the two leading coins in the market, as shown by Binance charts.  

But if digital assets are ever to reach mainstream acceptance, regulation is a must. This is the only way forward for the cryptocurrency industry and by the looks of it there’s no going back to the digital Wild West that crypto was once part of. Crypto’s rising popularity and increased usage as a payment method or investment option stresses the importance of adequate regulatory frameworks. Many investors support regulators’ undertakings as this would grant them protection from official bodies and reduce the likelihood of scams or fraudulent activities, making the crypto market a safer place for everyone.  

At the moment, the global regulatory landscape for digital assets is patchy and inconsistent, with different countries taking varied and sometimes contrasting approaches to crypto rules and standards. 

UK’s take on crypto regulations 

In the UK, a country with one of the most globalized and developed economies in the world and a leading tech hub, crypto trading became a regulated financial activity with the passing of the Financial Services and Markets Act 2023. The Financial Conduct Authority then decided that promotions for cryptos assets could only be conducted by regulated entities. 

Back in June 2023, the UK’s Law Commission suggested the creation of a distinct legal category for crypto assets, labelling them as “digital objects”. The proposal came after the government requested the Commission to evaluate the existing laws and advise on reforms that could facilitate the inclusion of digital currencies in a responsible manner. Prior to that, the now Prime Minister Rishi Sunak had also expressed intentions of turning the UK into a crypto hub. 

Now, the UK’s Law Commission is taking another step in this direction, adding a consultation paper on draft legislation to the initial recommendations issued in June which aims to include digital assets into a new category of personal property. According to the Commission’s update, this classification would be better suited to accommodate and protect digital currencies and their specific characteristics. 

Along with this recommendation, the Commission also advised the government to create a panel of industry experts to assist lawmakers with the technical aspects and intricacies involved in the drafting of the regulations. Furthermore, the draft legislation touched upon the importance of providing market participants with legal tools that could help them gain a better understanding of legal requirements. 

Given these developments, there’s no denying that the UK is making rapid progress in advancing crypto regulations. There are already several major crypto companies based in the region, including Gemini, Fidelity Digital Assets, and Zodia Custody. With the development of a comprehensive legal foundation for crypto, their number is expected to increase. 

Crypto legislation around the world 

Across the pond, the United States is also working on building a solid regulatory framework for digital assets but they are taking a different route than their British counterparts. The responsibility for overseeing activity in the crypto industry is divided between the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). 

The SEC has intensified its regulatory oversight of crypto as demonstrated by the 55 enforcement lawsuits it has filed since Gary Gensler was appointed chair of the commission in 2021. Legal actions against major crypto stakeholders like Ripple, Coinbase (COIN), and Binance (BNB) have made the headlines in the crypto space over the past few years, proving that the US government is determined to step up its crackdown on crypto. 

While authorities in the US are busy trying to weed out crypto’s bad actors, other governments are looking to leverage crypto by integrating digital assets into their economic framework. El Salvador and the Central African Republic made history by becoming the first countries to concede Bitcoin legal tender status. Other countries with developing economies are also considering following in their footsteps. 

Digital assets are legal in most countries in the European Union, although there is variance among state members when it comes to regulating crypto exchanges and the taxes imposed on crypto activities. However, the EU seems to have found the recipe for success with the development of the Markets in Crypto-Assets Regulation (MiCA), a draft legislation covering crypto assets that seems to be the most sound and complete regulatory framework established so far. 

At the opposite extreme, we have China where crypto trading and mining have been banned since 2021, which led to the relocation of many crypto companies to jurisdictions with more industry-friendly regulations. Other countries like Canada, Japan, and Australia, although they employ different laws and standards, are rather progressive in their implementation of crypto regulations. 

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Leaving the digital Wild West 

Although the crypto regulatory landscape is far from being cohesive and uniform, there’s no doubt that digital currencies are moving further away from the legal no man’s land and slowly entering into a new era where clear regulations provide the promise of a safer and more stable market. Initiatives like the recent recommendations issued by the UK’s Law Commission stand as proof in this regard and many more similar projects will likely follow in the near future.