Ten years since the appearance of cryptocurrency, central banks around the world dare not turn a blind eye. Increasingly rare are the countries that have not issued a cohesive cryptocurrency policy. At the extremes, there are those who have become, on the one hand, global advocates, and on the other, die-hard opponents. Of course there is a broad range of reactions spread in between as well. For our part, BANKEX will make the argument that crypto and the traditional financial system can not only coexist, but complement each other.

Illegal Crypto

Bitcoins are not issued, supported, or regulated by any central bank, which results in several countries viewing it as a wildcard factor and potential financial adversary despite the many innovations it offers. In 2014, for example, Bangladesh passed a law stating that anybody caught using the virtual currency would be punished by up to 12 years in jail under the country’s strict anti-money-laundering laws. In Macedonia payment with Bitcoin earns you up to five years. Additionally, in many other countries, though prison time is less likely, crypto is still illegal.

As of 7 April 2018, the State Bank of Pakistan (SBP) has announced that Bitcoin and other virtual currencies/tokens/coins are banned in Pakistan. This news followed immediately after India banned Bitcoin and other cryptocurrencies. On 13 August 2017 Nepal Rastra Bank declared bitcoin as illegal.

The National Assembly of Ecuador banned Bitcoin, as well as other decentralized digital/cryptocurrencies, due to the establishment of a new state-run electronic monetary system. Ecuador’s new project will be controlled by the government and tied directly to the local currency.

Schrödinger’s Bitcoin

While the regulations of numerous countries doesn’t make the usage of bitcoin itself illegal, its status as currency fluctuates with the resulting implications. This leads to an indefinite legal evaluation and prevents effective cooperation.

For instance, Belgium has refused to issue any stance regarding Bitcoin, and along with a whole host of other countries, is waiting for a Eurozone-coordinated policy reaction.

Even though the USA have the highest number of cryptocurrency users, the highest number of Bitcoin ATMs, and also the highest Bitcoin trading volumes globally, there is no consensus regarding federal regulations, and a suspicious attitude in general.

The second largest bank by total assets, Bank of America, went so far as to claim in an annual report to the SEC this February that cryptocurrencies pose a competitive threat to its business.

The most surprising assessment was the realization that crypto could threaten the bank’s overall service business model. BofA outlined that “clients may choose to conduct business with other market participants who engage in business or offer products in areas we deem speculative or risky, such as cryptocurrencies,” which would “negatively affect [BoA’s] earnings by creating pressure to lower prices or credit standard.”

However, it is hard to deny that despite the fact that the U.S, reminds a burnt child who dreads the fire, there is still a list of acts that can be seen as legal and illegal.

The general suspicion and negative attitude of traditional banks towards crypto in the US doesn’t prevent some from dabbling, but roadblocks do exist. For instance, people are allowed to “buy cryptocurrency of both individuals and companies on BTC exchanges such as GDAX, Gemini or Bittrex after the ID verification, speculating and paying tax.

It is even possible to use Blockchain technology and set blockchain projects, provide cryptocurrency consulting. But it is prohibited to sell security tokens masked as utility tokens to US citizens, residents or people staying on the US territory. One cannot even accept the US dollar in exchange for cryptocurrency or vice versa without a license”, explains Nikita Lisitsyn, Head of Analytics at MediaToken, BANKEX Media Division.

Anyway, it is still complicated to obtain a licence and the situation regarding the taxes remain discouraging in most states. Unfortunately, taxation is discouraging in most US states and it remains complicated to obtain a licence.

“Bitcoin is not a currency”

Another illustrative example is France, which is trending highly suspicious towards cryptocurrencies.

In January, France’s Minister of Finance Bruno Le Maire appointed Jean-Pierre Landau, an open Bitcoin critic, to head a task force to examine cryptocurrency regulation. Landau has called Bitcoin the “tulips of modern times” in reference to Tulip Mania, which swept Europe in the early 17th century.

In December 2017, the Governor of the Bank of France, Francois Villeroy de Galhau, issued a warning on the high risks of investing in Bitcoin. “Bitcoin is in no way a currency or even a cryptocurrency,” he stressed, claiming instead that it is a speculative asset; neither a currency or a digital currency.

The claim that Bitcoin is not a cryptocurrency stands out as one of the most unexpected from state finance officials.

Bitchain — Definitely not a currency

The ambient witch hunting results sometimes in awkward situations. In an interview with Bloomberg, that network’s CEO and Founder Michael R. Bloomberg even confused Bitcoin and Blockchain (http://bitcoinist.com/bloomberg-system-bitchain-blockchain/) , coming out with a newly-coined portmanteau ‘Bitchain.’

Goldman Sachs CEO Lloyd Blankfein, also present at the interview, was on hand to correct him, but Bloomberg continued to claim that his network basically was, in fact, a Blockchain.

“In fact, the Bloomberg system is a Blockchain; it’s just that instead of having the users control it, we control it,” he said.

This situation is an important reminder that what scares people the most is that which they don’t understand.

In a report published at the beginning of March, the Bank of France proposed to ban insurance companies, banks and trust companies from “taking part in deposits and loans in crypto-assets.” It also advocated for prohibiting all marketing of “crypto-asset” savings products to the public, save for the “most informed investors.”

At the beginning, the document admitted that cryptocurrencies have found their way into the real economy. Moreover, the statement recognized the potential of the cryptocurrencies as a mean of investment and financing in connection to the initial coin offerings (ICOs).

And that’s what makes the bank’s conclusions unexpected. The report suggests strict regulatory provisions, claims that cryptocurrencies do not constitute money, and emphasizes that they are not legal tender.

However, later in March the French finance minister decided to reverse course willing not to set France’s “leadership position in the world” on fintech. Le Maire mentioned the blockchain revolution in which “bitcoin was only a precursor,” suggesting more innovation could be developed in the country.

Canada

Canada is among the countries that decided to update its policy in order to modernize its financial system.

In November 2013, the Canada Revenue Agency declared that Bitcoin payments should be treated as barter transactions. The Canadian federal government also announced its intention to regulate Bitcoin through its anti-money laundering and counter-terrorist financing legislation — an applaudable step to guarantee tougher security.

Canada also appears to be a blockchain friendly country. Financial institutions in Canada have largely embraced blockchain technology, and most major banks, including the central Bank of Canada, conducted pilot projects or initial research into the uses of blockchain technology for the financial sector. In fact, the Bank of Canada has gained a reputation for blockchain-friendliness because of its experiments with mock digital currencies and payment systems based on the Ethereum blockchain.

Crypto pioneers

Japan

The most notable pioneer is Japan, which has passed a law accepting Bitcoin as legal tender in 2014.

Instead of promptly banning crypto after the famous 2014 hack, Japan issued new regulations that require exchanges to obtain a government license. This is a great example of what cooperation between crypto and state governments could look like.

Now, according to data gathered from 17 cryptocurrency exchanges in Japan and released by Japan’s Financial Services Agency (FSA) for the first time on March 31, 2018, at least 3.5 million individuals that are trading with cryptocurrencies use actual assets. This constitutes a serious growth in security guarantees for the relatively new financial mechanism.

Additionally, according to several sources, Japanese online brokerage firm Monex is reportedly considering buying Coincheck, which suffered a high-profile hack in January.

This potential acquisition attests to a massive confidence boost in Japan’s crypto exchange service.

China

In late 2013, China’s Central Bank (the People’s Bank of China) barred financial institutions from participating in digital currency and Bitcoin transactions, but individuals are free to trade as they wish — Chinese yuan to Bitcoin is the highest traded daily fiat-to-Bitcoin pair.

At the same time, China also prefers to reinsure. Speaking at a press conference amid the Two Sessions, China’s annual political event, People’s Bank of China (PBoC) governor Zhou Xiaochuan took aim at cryptocurrency projects that have shifted away from their purported use cases in favor of promoting what is essentially market speculation.

Even though China’s Central Bank still holds a positive view on blockchain development, and many projects are trying to bring genuine services to consumers, officials warn consumers against reckless expansion of blockchain projects which may incur serious security and financial stability issues.

In particular, Zhou Xiaochuan suggests that blockchain projects with technological potentials conduct thorough testing before rolling out services.

That position is also in line with the PBoC’s efforts to study applications of the tech through its digital currency research lab.

Switzerland

Johann Schneider-Ammann, Swiss economics minister, told journalists that Switzerland wanted “to be the crypto-nation”, as he arrived for a private crypto finance conference in St. Moritz last week.

Such a statement has created a dilemma for Swiss politicians and regulators: just how far should they go in encouraging a digital “wild west”?

Banks are so open that they went so far as to argue that private digital currencies are better than any state-issued version.

“Private-sector digital currencies are better and less risky than any version that might be offered by a central bank,” admitted Swiss National Bank (SNB) Governing Board member Andrea Maechler. “Digital central bank money for the general public is not necessary to ensure an efficient system for cashless retail payments,” Maechler said during an event in Zurich.

The position of bitcoin has long been inspiring in Switzerland, making it the most open to business innovation country. The country’s largest city, Zurich, set up its first bitcoin ATM four years ago, while the Swiss national rail company has since 2016 provided the possibility of purchasing the virtual currency at over 1,000 distributors across the country.

Switzerland’s famous banking sector, for its part, has been divided in the face of the flood of new virtual currencies on the markets.

Some Swiss banks were among the first to dive into the cryptocurrency pool. Falcon Private Bank has offered asset management services for a range of cryptocurrencies, including bitcoin and ethereum, while financial and trading services group Swissquote offers trading in five virtual currencies.

Vontobel also created the first structured bitcoin product, a tracker which allows for investment in shifting values of the virtual currency without purchasing the coins directly.

However, Switzerland’s two largest banks UBS and Credit Suisse have thus far kept their distance from the crypto boom.

Should a country decide to ban bitcoin trading, it will eventually cause more risk and turmoil, from which officials could prevent citizens. Obviously deciding to ban bitcoin won’t actually stop bitcoin from being traded. In order to ban cryptocurrencies, officials would need to heavily restrict the internet, which is largely impossible. At the same time, ongoing reluctance in some countries to accept the fact of crypto existence and to recognize all the opportunities that the technology offers will lead to uncertainty in the market, misinformation, and speculations which will then result in price drops. BANKEX is convinced that fiat and cryptocurrency can co-exist, and blockchain and the current financial system can complement each other.