Crypto regulation in 2024: forecasts and perspectives

Here, we look at the current state of cryptocurrency regulations and talk to experts on what to expect in 2024.

As we step into the new year, analysts expect to see a surge in regulatory clampdowns in the crypto space. The rules will expand to cover anti-money laundering and counter-terrorist financing risks, the conduct of companies operating in the crypto space, and supervisory actions concerning token sales.

In the U.S., the tempo of regulatory actions shows no signs of abating; likewise, the UK has introduced a set of rules equating the sale of crypto tokens to that of traditional financial products.

Similarly, the European Union (EU) is set to become the first significant global jurisdiction to formally enact a broad suite of laws and regulations governing the crypto sector in 2024.

The Markets in Crypto Assets Regulation, or MiCA, aims to establish uniform EU crypto regulation and provide legal certainty for digital assets beyond the scope of current EU financial services legislation.

Speaking broadly, analysts expect the focus areas for 2024 to extend beyond the general trend of increased regulatory intensity. They predict that financial institutions will develop stronger risk management frameworks and enhance their capital and liquidity requirements to reflect the current economic climate.

Moreover, the escalating importance of data and AI in both traditional finance and the crypto sector is expected to increase the need for data governance and model risk management in global crypto regulation.

Analysts also anticipate that sustainability and environmental, social, and governance (ESG) factors will hold greater weight in international crypto regulation, with cybersecurity continuing to be a top priority as digital asset platforms remain in the crosshairs of hackers and scammers.

Let’s explore a brief geographic overview of current crypto regulations and the anticipated legislative landscape for 2024.

U.S. crypto regulation

Cryptocurrency regulation in the U.S. comprises a blend of state and federal oversight, allowing multiple agencies to have stakes in the sector’s control.

These agencies, including the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), have largely leveraged existing legal structures to regulate digital asset activity.

Over the course of 2023, the SEC and the CFTC instigated more than 200 enforcement proceedings against crypto firms. The heightened activity by U.S. regulators came against a backdrop of bankruptcies, scams, fraudulent operations, and illicit movements of funds riddling the sector.

As the year wound down, several players in the crypto space called out the regulators, especially the SEC, for their approach to policing the industry. They also renewed calls for policymakers and regulators alike to clarify crypto laws and adopt a more comprehensive rulemaking approach.

However, these pleas were largely ignored. As the year ended, the SEC reeled from multiple legal setbacks, particularly in its cases against Ripple (XRP) and Grayscale.

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But it did have a last laugh of sorts. On Dec. 15, the regulator denied a petition by Coinbase asking for new rules for the crypto sector.

Anton Titov, CEO of fiat-to-crypto payment processor Archway Finance, told crypto.news he felt the SEC’s decision was justified. As he explained, the agency’s role is to protect investors, maintain market integrity, and facilitate capital formation. As such, he opined that denying Coinbase’s petition was in the full interest of investors.

“Because for now and next year, most people are touching crypto only for speculative purposes. Even if it’s utility tokens, speculation is equal to ambition to earn, and then it equals investment. Then it means that the SEC behaves in the full interest of investors trying and trying to sustain market integrity.”

Anton Titov, CEO Archway Finance

However, Titov pointed out that the decision also highlighted the SEC’s reticence to embrace cryptocurrencies fully. He feels the agency views Bitcoin (BTC) and stablecoins as threatening established and controllable monetary flows.

Moreover, in his opinion, the U.S. regulator is not designed to be an “innovation hub” for new technologies like blockchain and digital tokens, indicating a fundamental disconnect between its mission and the crypto industry’s goals.

However, the increasing market size of certain cryptocurrencies, especially dollar-backed stablecoins, which have exceeded the $50 billion threshold for systemic importance, has drawn the attention of U.S. lawmakers, resulting in them drafting more legislative proposals to regulate crypto activity.

One such proposal is the bipartisan Responsible Financial Innovation Act (RFIA), which seeks to categorize most digital assets as commodities. It would place primary oversight responsibility on the CFTC and establish regulatory requirements for stablecoins.

Additionally, the Biden Administration released an Executive Order outlining the U.S. government crypto regulation approach.

Looking ahead to 2024, many forecast U.S. efforts to pass cryptocurrency laws will largely focus on two bills: one seeking to oversee stablecoins at a federal level and the second proposing a comprehensive approach to crypto’s overall market structure.

Sponsored by Patrick McHenry, chair of the House Committee on Financial Services, the Clairity for Payment Stablecoins Act may be one of the first legislative items to be addressed in 2024.

It passed the committee stage in July despite initial opposition from the White House and several powerful Democrats concerned about a provision allowing state regulators to approve stablecoin issuances without Federal Reserve input.

However, SEC Chair Gary Gensler has compared stablecoins to money market funds and suggested those pegged to the dollar should fall under his agency’s ambit, something observers feel could pose a hurdle to the smooth passage of the stablecoin bill.

The second bill, the Financial Innovation and Technology for the 21st Century Act, could also face challenges as it proposes shifting more responsibility to the CFTC and mandates that regulators establish a clear route for digital assets to transition from being security investments to commodities.

In the same vein, the legitimacy of the crypto sector could be boosted by the potential approval of Bitcoin ETFs. Multiple asset managers, including BlackRock, Fidelity, and WisdomTree, are vying for a spot Bitcoin ETF, subject to the SEC’s approval, which has yet to be granted.

Finally, the 2024 election season could significantly impact digital asset legislation, with lawmakers’ focus potentially shifting from crypto regulation to re-election campaigns.

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UK crypto regulation

Since 2020, UK law has required crypto companies to register with the Financial Conduct Authority (FCA) and comply with the money laundering, terrorist financing, and transfer of funds regulations 2017.

However, in October 2022, as part of the UK government’s broader strategy to make the country a global hub for crypto technology and investment and to enable regulators to respond more quickly to developments in the space, the House of Commons voted to allow the Treasury to regulate cryptocurrencies as financial instruments under the Financial Services and Markets Act 2000.

Additionally, the government issued a consultation paper earlier in 2023 looking for recommendations on regulating the crypto industry. Following the exercise, Whitehall expressed its intention to bring a wide range of digital assets, including utility tokens and unbacked exchange tokens, under regulation similar to traditional financial assets.

The rules governing the advertisement and sale of crypto in the UK are also changing, with the Treasury aligning crypto promotions with other types of financial advertising. Additionally, the FCA has imposed further restrictions on the sale, marketing, and distribution of crypto-derivatives, excluding security tokens.

Moreover, just like in the U.S., stablecoins are expected to come under increased regulatory scrutiny in the UK. The government plans to make them a recognized form of payment. Observers forecast that this could be largely achieved by extending existing electronic money and payments legislation.

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Speaking to crypto.news, Nathan Catania, a partner at regulatory affairs consultancy XREg, posited that the UK’s approach to stablecoin regulation will play a crucial role in the nation’s financial future. Catania highlighted the UK’s proactive measures in addressing key regulatory risks, stating the country is ensuring issuers maintain reserve assets that are low-risk, liquid, and secure.

“Overall, the key regulatory risks are already being addressed. These include ensuring that issuers maintain reserve assets and that these assets are low-risk, liquid, and secure instruments. Detailed requirements around the safeguarding of customer assets and other prudential requirements will ensure that stablecoins issued in the UK are safer for consumers to use.”

Nathan Catania, partner, XReg

However, Catania also identified potential hurdles in the regulatory approach to overseas stablecoins. Most stablecoin activity in the UK involves foreign-issued assets, notably Tether (USDT) and USD Coin (USDC). According to him, the impact of the regulatory framework on the listing and trading of these stablecoins on UK-based crypto exchanges remains unclear even as we enter 2024.

Moreover, the analyst voiced concerns over the potential non-extension of the stablecoin regime to peer-to-peer payments. He believes this could impact the UK’s crypto market and exchanges, possibly restricting consumer choice while protecting their interests. As such, he believes the UK must strike a careful balance when crafting future cryptocurrency legislation.

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Europe crypto regulation

The landscape of cryptocurrency legislation in Europe took a major leap forward with the implementation of MiCA in July 2023. This regulatory framework represents the first attempt to orchestrate cross-jurisdictional supervision of digital assets and their related activities across the EU.

MiCA is a pivotal cog in the European Commission’s broader strategy to enshrine crypto and blockchain technology into the financial services industry.

Forming the basis for EU crypto regulation, MiCA seeks to synchronize the disparate laws of individual EU member states and strike a delicate balance between encouraging financial innovation and mitigating the distinct risks posed by various types of digital assets.

In 2024, crypto asset service providers (CASPs) and crypto asset issuers (CAIs) operating in or across the EU will have to adhere to a unified rule book, replacing hitherto disjointed national frameworks.

Further refinement of MiCA’s application is expected in the new year, with the European Securities and Markets Authority (ESMA) and European Banking Authority (EBA) developing regulatory technical standards (RTS), implementing technical standards (ITS), and guidelines.

Concurrently, EU member states are expected to deploy their own legislative tools to support the roll-out of MiCAR, RTS, ITS, and guidelines.

The European outlook for 2024 is that national competent authorities (NCAs) of EU member states will step up their game, outlining supervisory guidance and expectations for the authorization and supervision of CASPs, CAIs, and traditional financial service providers venturing into MiCAR-regulated activities.

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Crypto regulation in Asia

While China completely outlawed crypto use in 2021, several of its neighbors made moves to embrace the industry, with the regulatory landscape in the region shifting to focus on consumer protection and clarity for the sector.

Singapore led the charge in 2023, with the Monetary Authority of Singapore (MAS) announcing new rules, due to come into effect in mid-2024, to protect individual traders. The rules include limiting access to credit for crypto trading, banning incentives encouraging trading, and prohibiting crypto purchases using locally issued credit cards.

Meanwhile, Hong Kong has taken a more liberal approach, welcoming crypto firms and initiating its own crypto licensing regime. The semi-autonomous region plans to establish itself as a global hub for virtual assets by implementing a comprehensive regulatory framework, for which more work is expected to be finalized in 2024.

Currently, Hong Kong regulators categorize cryptocurrencies as either security or utility tokens, with the former falling under the Securities and Futures Commission (SFC) jurisdiction.

Japan, on its part, has been building a foundation for the growth of the crypto economy, even recognizing web3 as a key pillar of its economic roadmap.

From a regulatory standpoint, the classification of crypto assets in Japan falls under several categories: crypto assets, stablecoins, security tokens, and others such as NFTs, each governed by different legislation.

The holding and selling of cryptocurrencies are regulated by the Payment Services Act (PSA), with no specific prudential requirements for digital assets. However, service providers must maintain a specific percentage of customer funds in highly secure methods such as cold wallets.

The amendment to the PSA in June 2023 further defined the status of stablecoins denominated in legal currency, distinguishing them from other digital assets.

Currently, regulations limit stablecoin issuers to banks, money transmitters, and trust companies, while intermediaries must register with regulatory authorities and adhere to stringent AML/KYC guidelines.

Expectations for 2024 indicate continued growth, with increasing regulation and clarification within the crypto space to foster a more secure and conducive environment for crypto-related activities.

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Global crypto regulation

The rest of the globe has not been left behind in cryptocurrency legislation either. PwC’s 2024 review of crypto regulation worldwide shows a list of more than 40 jurisdictions with some form of crypto rules.

Looking at crypto regulation by country, outside of the EU, only the Bahamas, the Cayman Islands, Japan, Mauritius, Singapore, and the United Arab Emirates (UAE) have comprehensive cryptocurrency legislation covering everything from licensing, registration, and travel rules to the treatment of stablecoins.

Many others are still working on frameworks that will put them on the crypto regulation map, with states such as Qatar, South Africa, Taiwan, and Canada all having different levels of ongoing regulatory activity, including discussions, consultations, and pending implementations of cryptocurrency laws.

Elsewhere, Australia has proactively developed a regulatory framework for the crypto sector. As part of its multi-stage reform agenda, the Australian Government published a token mapping consultation paper in February, laying the groundwork for subsequent regulatory measures.

In addition to Australia, the UAE has also made strides in crypto regulation, establishing itself as one of the first jurisdictions with comprehensive cryptocurrency laws.

Given the rapid expansion of the virtual asset ecosystem, the UAE government delegated the authority for their regulation to the Securities and Commodities Authority (SCA) and the Central Bank (CBUAE), fostering an environment conducive to the growth of the crypto sector.

New Zealand, meanwhile, has taken a more measured approach, focusing on understanding how existing regulations apply to cryptocurrencies and crypto service providers before establishing new specific legislation.

In recognition of the nascent stage of the crypto industry, the New Zealand government has emphasized the importance of adaptable rules that can evolve with the sector’s growth and align with crypto regulation worldwide.

South Africa, on the other hand, is mapping out its journey in crypto regulation. Observers of the sector in the country suggest that it is keen to learn from the experiences and models of other jurisdictions, including those outside Europe and the United States, as it tries to understand the complexities related to oversight crypto.

Expert outlook

This snapshot of the “crypto regulation map” underscores a global trend toward developing tailored regulatory measures for the crypto sector.

Upcoming crypto regulations are expected to further refine and enhance these measures, fostering a more robust and sustainable crypto market where innovation thrives under the watchful eye of regulatory bodies.

Sharing his 2024 outlook, industry analyst Anton Titov has predicted that MiCAR will be implemented across the EU, resulting in uniform anti-money laundering policies across all member nations. He also suggests that non-EU countries like the UK, Switzerland, and the U.S. will likely align with these standards.

Looking beyond the EU and the U.S., Titov forecasts a shifted perception of crypto in other parts of the world. He predicts the potential new president of Indonesia might be more open towards cryptocurrencies and suggests that India might welcome more foreign companies into their local market.

This would involve the establishment of frameworks that align with bank policies, steering how people invest and transact domestically and across borders.

However, Titov also anticipates that privacy on blockchain will continue to be prohibited and negatively perceived, even in business transactions. Despite this, he believes that the emergence of the first central bank digital currencies (CBDCs) on the market, while not fully realizing Satoshi’s vision of financial self-sovereignty, will send a strong message of the inevitability and regulatory approval of blockchain technology.