Guest Post by Andrei Poliakov – Coinberry Co-Founder and CEO
Are You Prepared For Government Regulation of Crypto Exchanges? It’s Happening Now, and here’s what investors need to know.
It should come as no surprise that governments are looking for a way to fill their treasuries, tighten tax laws, and update aspects of the financial system. 2020 lockdowns and economic hardship resulted in billions (trillions in some cases) of dollars being printed and infused into the economy.
While asset prices are at an all time high, the impacts of inflation loom over the entire economy, threatening to destabilize economies around the world.
Cryptocurrency, one of the assets that has risen the most in the past 18-months, has naturally attracted more attention than ever before, becoming a target for tax collection and the government regulation that quickly follows.
As more people look for ways to manage the looming threat of inflation and move to crypto, governments will quickly push forward on regulation that allows for easy tax collection, increasingly difficult KYC compliance, and the restriction of crypto related products in their borders.
Here’s what investors need to know to prepare for the shifting landscape.
Understand What’s Being Regulated
To be clear, at this point governments do not seem to be averse to a cryptocurrency ecosystem. On the contrary, many governments are actively looking to implement their own forms of cryptocurrency, denominated in the currency of the central bank.
As has been seen with China, their rapid acknowledgment of the power of cryptocurrency has spurred innovation and experimentation with the DRMB (Digital RMB, the local currency of China).
It’s not cryptocurrency that is being fully regulated (yet), it’s the general population’s ability to access and interact with crypto related products that will be monitored and controlled to start.
This is being done at the exchange level – the on and off ramps of the cryptocurrency world. Regulation here would mean that governments will have unfettered access to user, transaction, and tax data.
Here are a few examples of how governments are ratcheting up the control over exchanges:
- Governments have already implemented stronger requirements of KYC for exchanges that wish to operate in their respective country.
- Governments have already requested user data from exchanges, for users who have purchased over a certain amount of cryptocurrency.
- Governments have already started a process of requiring that exchanges become regulated as _________ entities if they wish to continue doing business in their country.
While these regulations are generally safer for the average crypto-investor, this increased regulation may provide a number of challenges for those who are already invested in cryptocurrency or who may be advanced users on multiple platforms and with multiple financial products, as some of these products and offerings may not be available in the current regulatory framework.
Here’s how investors can prepare for the coming tightening of government regulations.
Ensure You’ve Got Cold Storage
The first form of protection over your digital assets is to ensure that you’ve got cold storage for your cryptocurrency.
It will not be an uncommon site to see exchanges moving out of countries, blocking access to users from that specific location, or locking deposits or withdrawals all together.
We have already seen this with Binance in the United States, and Binance in Canada. The trend will continue as governments roll out regulatory guidelines on what exchanges need to do to be able to operate in their countries.
If you’re looking to protect your cryptocurrency assets, ensuring you’ve got cold storage, so you can easily migrate to a different exchange if necessary, is a critical first step.
Understand DEX’s Are Not Fully In The Clear
While DEX’s (Decentralized Exchanges) may seem like a good initial option, you’ve got to remember that it’s the on and off-ramps of the crypto world that governments are regulating.
Moving money onto any exchange, or moving money off any exchange will eventually require that you process your transactions through a regulated organization – a regulated crypto exchange or service provider.
While governments may not be able to fully control DEX’s, we can expect that they will establish requirements for DEX’s that wish to accept users from their country, and these requirements will likely fall in line with other crypto exchanges.
This is besides the point however. Should you want to deposit or withdraw fiat from a DEX, you’ll need to pass through a regulated on or off-ramp, thus subjecting you to the regulation of that country.
Look For Exchanges That Are Regulated or Are Getting Regulated
There are a number of exchanges that have seen the writing on the wall, and have been working together with the government to become fully approved from a regulation perspective. This is an extremely time consuming process that takes years or work and effort.
Yes, our exchange Coinberry is one of the exchanges that has been working on getting Canadian regulation for years. We are quite close to the end of the process and look forward to getting approval as soon as possible.
But there are other exchanges in the industry as well who have been working together with the Government of Canada to satisfy the regulatory requirements that have been established.
Regardless of your exchange of preference, as the government shifts to restrict assess, you’ll want to find exchanges that are:
- Fully regulated in your respective jurisdiction
- Are undergoing regulation (and have started the process at least 1-year ago)
Remember, getting government regulation as an exchange is a very time consuming process. It will take between 1-3 years for an exchange to satisfy all requirements. Again, although we are at the tail end of the regulatory process in Canada, we have been going through this process for 2-years now and speak from experience.
If you’re looking at your favorite exchange and they have not already begun the process, expect that their fully functioning license will take time to come through.
In the meantime, you’ll need to decide how you’re going to access the crypto market in your country, and take advantage of the massive potential this market has to offer.
We are not financial advisors, and no content on this site should not be taken as financial advice. No guarantee can be made if you invest based on the information provided on this blog. We make no warranty of any kind regarding the blog and/or any content, data, materials, information, products or services provided on the blog.