The United States establishes global crypto standards as the world's leading enforcer.

• Overseas regulators have been actively enacting formal laws in response to the $4 billion settlement of Binance and the lawsuits involving other crypto companies in a year marked by heavyweight controversies in the crypto industry.
• This year, the Securities and Exchange Commission has sued both Coinbase and Binance, making the U.S. one of the most active enforcers of legal action against crypto companies.
• The European Union passed a first-of-its-kind set of comprehensive laws for the crypto industry with the approval of its Markets in Crypto-Assets regulation.

In 2023, regulators worldwide intensified their efforts to establish formal regulations for digital currencies. However, it was the U.S. that implemented the most stringent legal measures against significant players in the industry.

Regulators worldwide have been actively working to curb the crypto industry's malefactors, with new legislation being introduced and existing regulations being strengthened.

In 2024, what can we anticipate for global crypto regulation and enforcement?

U.S. tops the list globally for enforcement

This year, the U.S. has emerged as one of the most active regulators of penalties and legal action against crypto companies, in response to the collapse of Sam Bankman-Fried's crypto empire, which includes his FTX exchange and sister firm Alameda Research.

"Renato Mariotti, a former prosecutor in the U.S. Justice Department's Securities and Commodities Fraud Section, stated that while enforcement was necessary in some cases, like FTX, U.S. enforcement actions against market participants that focus on compliance are questionable and a result of the U.S.'s "regulation by enforcement" approach."

The U.S. is the only country that has actively taken action against large-scale crypto companies and projects, with enforcement being its primary approach and it being the most punishing regulator when it comes to penalties and fines.

""Unlike other countries, we lack a comprehensive regulatory framework, leading to litigation of issues that should be determined by legislation or regulation," Mariotti stated to CNBC."

In the absence of specific regulations from various agencies such as Capitol Hill, the SEC, the Commodity Futures Trading Commission, the Department of Justice, and FinCen, these organizations have collaborated to regulate the space through enforcement actions.

Richard Levin, a partner at Nelson Mullins Riley & Scarborough, states that the SEC, CFTC, and Congress have been some of the most active enforcers globally in regulating digital assets and cryptocurrencies.

For 30 years, Levin has been involved in the fintech sector and has stated that these agencies have given advice to the industry on how digital assets and cryptocurrencies should be offered, sold, traded, and held by custodians.

Levin continued, "However, much of their work has been providing guidance to the industry through enforcement actions."

The Justice Department's Market Integrity and Major Frauds Unit has charged cryptocurrency fraud cases totaling over $2 billion in intended losses to investors worldwide since 2019.

In 2023, the CFTC reported that nearly half of its enforcement actions involved digital asset commodities, while the SEC emphasized the year's notable enforcement of crypto-related misconduct, including fraud schemes, unregistered crypto assets and platforms, and illegal celebrity touting. Since 2014, the SEC has brought over 200 actions related to crypto asset and cyber enforcement.

In the first half of the year, the SEC accused Binance and of engaging in illegal securities dealing in two lawsuits.

The SEC claims that 13 crypto assets accessible to Coinbase customers, including Solana's SOL, Cardano's ADA, and Protocol Labs' Filecoin, should be classified as securities, necessitating stringent transparency and disclosure standards.

The SEC accused Binance and its CEO, Changpeng Zhao, of not only violating securities laws but also commingling customer assets with company funds.

The U.S. attorney for the Southern District of New York, Damian Williams, has been leading some of Justice's highest-profile crypto prosecutions, including the monthlong trial of Bankman-Fried, the disgraced FTX founder. In November, a jury found the former FTX chief executive guilty of all seven criminal counts against him following a few hours of deliberation.

Some crypto companies are threatening to leave the U.S. entirely if the enforcement continues to police them.

Coinbase CEO Brian Armstrong criticized the SEC's actions against the exchange and hinted at the possibility of moving its headquarters overseas. However, he later retracted the threat of relocating abroad, and Coinbase and other major crypto firms have increased their investments in international operations.

Despite the legal challenges faced by crypto companies in 2023, market participants hope for clarity through new regulations.

Alyse Killeen, managing partner of Stillmark Capital, stated that clearer regulatory frameworks and stance from regulators worldwide have given a sense of legitimacy and security, leading to more widespread participation in the bitcoin market, as reported by CNBC.

This year, the U.S. witnessed the most significant advancements in crypto laws with one of the competing digital asset bills passing through multiple House committees for the first time.

Despite efforts by U.S. lawmakers to regulate the crypto industry, no specific laws have been enacted. According to Nelson Mullins Riley & Scarborough's Levin, progress is unlikely in a presidential election year with a divided federal government.

He contends that the absence of regulatory rules on crypto does not justify the frequent complaints that U.S. regulators are not offering guidance to the industry.

The regulatory bodies, including the SEC, CFTC, and FinCEN, often offer informal guidance on the regulation of digital assets and cryptocurrencies, as per Levin.

The SEC established a framework for analyzing digital assets and cryptocurrencies and even created a fake digital asset, HoweyCoins, to advise the FinTech community on how to avoid launching a digital asset, according to Levin.

The FinTech industry is subject to laws written for an era when American football players wore leather helmets, and some industry members forget this, said the speaker.

Although crypto's popularity has decreased recently, Stillmark Capital's Killeen believes that regulators will not lose interest in crypto by 2024. In the same year, two prominent crypto figures were imprisoned, and Coinbase's shares and the prices of digital currencies like bitcoin and ether experienced a significant increase.

Coinbase's stock price has increased by more than 400% since the beginning of the year, while Bitcoin and ether have both experienced a price increase of approximately 100%. This surge in price is due to investors' anticipation of the SEC's potential approval of a Bitcoin exchange-traded fund.

Europe

The European Union is poised to enforce its Markets in Crypto-Assets regulation, aimed at regulating the crypto industry, in its entirety from next year.

The proposed law in 2019 aimed to combat fraud, money laundering, and other illegal financing in the crypto industry and to eliminate bad actors more broadly.

The central bank aimed to address the perceived danger posed by stablecoins, which are blockchain-based tokens representing government money but backed by private companies. These tokens, known as digital currencies, are linked to the value of fiat currencies like the dollar.

In the view of several EU central bankers, a private stablecoin from a large company like Visa or Mastercard could pose a greater threat to sovereign currencies and disrupt financial stability, despite Tether and Circle's USDC not being considered "systemic" assets.

The EU's crypto framework aims to combat threats, particularly the undermining of the euro, by prohibiting issuers from minting stablecoins backed by non-euro currencies, such as the U.S. dollar, once they exceed 1 million transactions per day.

The European Union is working towards a single regulatory framework for cryptocurrencies through its Markets in Crypto-Assets Regulation (MiCA).

The EU-approved MiCA regulation is set to become law, with the three main political institutions paving the way. Although MiCA took effect in June 2023, it is not expected to apply fully until December 2024.

Coinbase is preparing to submit an application for a universal MiCA license in Ireland, which, if approved, would enable the company to expand its services to other countries, including Germany, France, Italy, and the Netherlands.

While the US remains a top enforcer for the crypto industry, its perception as a regulator may be diminishing as other jurisdictions have stepped in with clearer rules.

The perception of the U.S. regulatory bodies like the SEC, CFTC, and IRS as strict enforcers in the crypto market is due to their proactive measures in addressing fraud and security issues, as well as high-profile legal actions.

"While these regions may not be as visible in international media for enforcement actions, they possess significant and sometimes stringent regulatory mechanisms."

European countries have been actively working on implementing new crypto laws, despite the broader EU's efforts to do the same.

Crypto companies and traders are being enticed by France's offer of tax cuts on crypto profits and a streamlined registration process for digital asset firms.

From January 1, 2024, the Financial Markets Authority (AMF) of France will update its registration requirements for crypto firms to match those of MiCA, as stated in an August announcement by the regulator.

French regulators have blacklisted 22 fraudulent websites, including some that promote crypto trading and crypto-linked derivatives, in September.

Bafin, Germany's financial regulator, aims to speed up its process of granting licenses for crypto custody services as part of a broader initiative to promote trust and transparency in the crypto market.

In June, the U.K., which is not an EU member, enacted legislation allowing regulators to supervise stablecoins. However, there are currently no specific guidelines for cryptocurrencies.

The Treasury department in the U.K. has confirmed that it intends to regulate crypto custody and lending under existing financial services laws.

Asia

The Monetary Authority of Singapore, known for its clear fintech and crypto regulations, finalized rules for stablecoins, marking it as one of the first jurisdictions globally to do so.

In 2022, Singapore suffered significant damage due to the collapse of TerraUSD, a contentious algorithmic stablecoin, and the downfall of Three Arrows Capital (3AC). Both Terra Labs, the company behind Terra, and 3AC were based in Singapore.

The new framework in Singapore mandates that stablecoin issuers must maintain a reserve of low-risk and highly-liquid assets that must match or exceed the value of tokens in circulation at all times. Additionally, issuers must return the par value of the digital currency to holders within five business days of a redemption request and disclose audit results of reserves to users.

Meanwhile, Hong Kong is conducting a public consultation on stablecoins and plans to implement regulation in the coming year.

Despite China's ban on bitcoin trading and mining in 2021, the region has been warming to crypto assets.

Earlier this year, the Hong Kong Securities and Futures Commission (SFC) introduced a registration system for digital asset businesses, including specific guidelines for crypto exchanges and funds.

Two firms, OSL Digital and Hash Blockchain, have received licenses.

The Middle East and Africa

The fintech sector has found a popular base in the United Arab Emirates due to its lack of personal income tax, flexible visa policies, and competitive incentives for international businesses and workers.

In 2022, Dubai, the UAE's most populous city, launched VARA, the Virtual Asset Regulatory Authority, to lead the virtual assets sector in the Middle East and Africa.

"Cryptocurrency businesses have been encouraged in Dubai and the UAE with designated zones and rules for trading," stated Perry.

Dubai was the first to launch a blockchain strategy in the UAE, and regulators in the country have been early adopters of cryptocurrency.

According to a Chainalysis report, UAE regulators have been at the forefront of the industry since then.

In 2018, Abu Dhabi Global Market established the world's first regulatory framework for cryptocurrency to encourage innovation and protect consumers.

The UAE enacted new federal regulations to facilitate the regulation of the crypto sector and the establishment of economic-free zones.

This story has been updated to indicate that Levin was referring to HoweyCoins.