Global Encryption Regulatory Landscape: Regulatory Styles and Policy Evolution

Cryptocurrency has transformed from a niche to a mainstream asset in just a few years. The number of global cryptocurrency holders has surpassed 200 million, with China alone accounting for 19 million holders. In the face of such a vast market scale, governments around the world have to confront the issue of encryption regulation. However, there is still no consensus on cryptocurrency globally, and the attitudes of various countries remain unclear.

This article will explore the evolution of regulatory styles and current attitudes of five countries and regions that are highly regarded in the encryption field.

United States: Balancing Risk and Innovation

Although the United States is the most attention-grabbing country in the global encryption field, its regulatory policies are more ambiguous and unpredictable compared to countries like Japan and Singapore.

Before 2017, the United States mainly focused on overall risk control and there were no signs of strict prohibition or accelerated legislation. In 2017, the SEC issued an announcement regarding ICOs for the first time, bringing them under the jurisdiction of federal securities law. In 2019, the United States began to take severe measures against cryptocurrencies, regulating them as securities rather than assets or currencies.

In 2021, as the number of encryption enthusiasts increased and institutions continued to advocate, the United States' attitude towards cryptocurrency changed. That same year, Coinbase became the first cryptocurrency exchange to go public in the U.S. In 2022, after the Luna and FTX incidents, U.S. regulatory density further expanded.

Currently, cryptocurrency regulation in the United States is jointly managed by federal and state authorities, primarily by the SEC and CFTC. However, these two agencies have not yet reached an agreement on regulatory responsibilities and standards. The attitudes and regulatory intensity towards cryptocurrency vary among states.

Overall, the United States has not taken the lead in encryption regulation globally. It focuses more on controllable risks and promoting innovation, hoping to lead the world in encryption technology rather than regulation. This ambiguous regulatory policy, while increasing market uncertainty, also leaves room for technological innovation.

Japan: Stable and Strict Regulatory Environment

Japan has remained active in the encryption field and is actively creating a sound regulatory environment for the industry. After the Mt. Gox incident in 2014, Japan began to implement stricter regulations and adopted clearer policies than other countries.

In 2016, the Japanese Parliament began legislating on encryption currencies. In 2017, the Payment Services Act was amended to bring encryption currency exchanges under regulatory oversight, making it the first country to legalize Bitcoin. After the CoinCheck hack in 2018, Japan further strengthened its regulatory measures.

In June 2022, Japan became the first country in the world to establish a legal framework for stablecoins by passing an amendment to the Payment Services Act. Japan's well-developed regulatory environment has allowed many encryption companies to develop steadily and protected investors during the FTX incident.

Overall, Japan's cryptocurrency regulation is clear and strict, focusing on industry guidance rather than prohibition, dedicated to protecting retail investors and filling legislative gaps. This clear regulatory stance makes the expectations for cryptocurrency businesses in the Japanese market much clearer.

South Korea: Tightening Regulations, Likely to Legalize

South Korea is one of the most active countries in the cryptocurrency market, with 20% of young people participating in trading. However, South Korea has not yet incorporated encryption into its laws.

Since 2017, South Korea has banned various forms of token issuance and regulated illegal activities. Regulatory measures include real-name systems, prohibiting minors and non-residents from opening accounts, among others. However, there are still gaps in the relevant details, and many regulations have only been issued by government agencies and have not yet risen to the level of national legislation.

In February 2021, South Korea began to consider encryption currency legislation for the first time. After the Terra incident in 2022, the legislative process accelerated. The South Korean government established the "Digital Asset Committee" and the "Virtual Asset Risk Committee" and began to implement more intensive regulatory measures.

The new president Yoon Suk-yeol is regarded as the "encryption-friendly president" and has promised to lift regulations on the encryption industry. The South Korean market is moving towards legalization, and future development is worth looking forward to.

Singapore: Predictable but Not Accommodative Policies

Singapore has maintained a friendly and open attitude towards encryption, recognizing cryptocurrencies as legal just like Japan. In 2014, Singapore became one of the first countries in the world to regulate virtual currencies.

In 2019, Singapore enacted the Payment Services Act, marking the first legislation for regulation. Compared to Japan, Singapore's regulatory environment is more relaxed, attracting numerous encryption companies. In 2022, Singapore began to improve its regulatory environment and started to restrict retail investment. In 2023, Singapore continued to maintain its crypto-friendly image, providing individuals with tax incentives for digital assets.

After the FTX incident, Singapore began to tighten its encryption policies but maintains a friendly attitude. Singapore's policies have always been stable and predictable, flexibly adjusted according to market conditions, but to control financial risks, it is also gradually tightening regulations.

Hong Kong: Actively Catching Up, Advancing Legislation

Hong Kong's attitude towards cryptocurrency has undergone significant changes, from initial opposition and skepticism to a positive embrace. In November 2018, Hong Kong first brought virtual assets under regulatory oversight. Since then, Hong Kong has regarded cryptocurrency as "securities" and incorporated it into the existing legal framework for regulation.

In October 2022, the Hong Kong government officially issued a policy declaration, beginning to actively embrace virtual assets. In 2023, Hong Kong continuously released legislative signals, planning to include stablecoins within the regulatory framework, and hopes to implement regulatory arrangements in 2023 or 2024.

Hong Kong seizes the opportunity of web3 development, showcasing its ambition to return to the encryption field and hopes to become a leader in the cryptocurrency market. However, the final outcome will depend on the implementation of relevant regulatory policies.

Conclusion

Although there is still no consensus among countries worldwide regarding encryption currency, strengthening regulation remains a future trend. In the early stages of industry development, strict regulation may stifle innovation. However, once the industry reaches a certain level of development, a lack of regulation can cause harm. The issue of encryption regulatory legislation is receiving increasing attention, indicating that the entire industry is moving in a positive direction.