Regulating Cryptocurrencies: Striking the Right Balance
With Bitcoin and other cryptocurrencies rallying following the conclusion of the G20 summit in Buenos Aires recently, where no consensus among global leaders was reached with regards to crypto regulations, the debate looks set to ramp up over the next few months.
Ahead of the guidelines now expected to be issued in July, the UK government last month announced their plans to unveil a crypto assets task force. Examining both the benefits and risks of cryptocurrencies, the crypto assets task force is part of a wider-scale fintech strategy which will also see the introduction of “robo-regulation” pilot schemes designed to help firms comply with new rules.
Where regulators in other countries such as China, South Korea and Russia are cracking down on cryptocurrencies, this is a positive breakthrough by the UK who have chosen to see the benefits of working closely with the crypto community and taking their views on board, as opposed to clamping down on them.
Like everything, there are pros and cons as to why cryptocurrencies should be subject to increased scrutiny. However, too much red tape can stifle creativity and we cannot afford to let this happen to a rapidly growing industry. Regulations are here to help build the whole space. They are not against the space, but part of the solution to create a long-term blockchain and crypto space.
Each country or region’s legislation should consider striking a balance between fostering innovation and setting rules as this is healthy for the crypto industry and helps foster a greater sense of trust between crypto investors, as well as in token generation events (TGEs) that abide by regulation.
Therefore it is crucial regulators find a happy-medium: one that allows healthy regulation to be implemented and adhered to, but that does not stifle innovation and creativity. Jörg Gasser, state secretary at the Swiss finance ministry, has been quoted as saying “We want it [the ICO market] to prosper but without compromising standards or the integrity of our financial markets”.
While we have seen some countries clamp down severely on cryptocurrency regulation, others such as Switzerland have adopted a more ‘open’ attitude.
I believe the Swiss regulation model strikes the perfect balance and is fair to both startups and investors. Some countries are less restricted and have much looser regulations which is good in the short term, but dangerous for the long term prosperity of a project.
While Switzerland is applying increased pressure on blockchain companies to comply with regulation, I think the Swiss are adopting a longer-term view which is bound to benefit both sides as I believe blockchain technology is going to change our lives in the future in the same way the internet transformed the world.
However, people may not understand the blockchain technology behind things. It’s like when you use websites on the internet to buy shoes or clothes - you don't necessarily think about the protocol you are using.
Leading the way in its bid to become a “crypto nation”, Switzerland, with the Swiss Finma financial authority, are actively looking to support the ICO market by clarifying when businesses need to apply anti-money laundering and securities law.
Up until recently, there has been neither prevailing legal practice nor administrative guidelines on the tax treatment of TGEs. Thus, most Swiss TGEs are currently held without filing a tax ruling, exposing themselves to great uncertainty regarding their tax consequences.
Now all that is changing, and pioneering companies such as qiibee are leading the change, helping to shape Switzerland’s blockchain industry. Last month, PrimeTax led us to become the first blockchain company to successfully obtain a binding tax ruling for the income tax treatment of qiibee’s TGE. The aim of the ruling was to ensure that in the tax period of the TGE, a provision for the financing of the project can be set against the taxable revenues received from the token sale. Because of the lack of administrative guidelines, the ruling of PrimeTax aims to integrate the TGE into the existing Swiss legal system. This will surely contribute to form the practice of tax administrations.
This is a huge milestone not only in the life of qiibee, but in the life of the Swiss cryptocurrency industry and this ruling has been described as a “breakthrough” for the Swiss blockchain industry. First off, the filed ruling and the TGE of qiibee both served as example cases for the authorities. Therefore, our TGE will most likely be the basis for future TGEs where tokens with similar characteristics are issued.
Secondly, it’ll help other Crypto Valley startups get their tokens off the ground faster. We did the heavy lifting and now we’re thrilled that all of Swiss crypto will reap the benefits of our time, research and endless meetings.