Regulatory uncertainty in cryptofinance (April 2021)

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Foreword: METI Advisory wrote this report for SEBA Bank AG. Abstract: Globally, the cryptofinance regulatory landscape is fragmented, but developing and improving. Market participants taking exposures in cryptofinance by investing in crypto assets or operating related processes may face considerable regulatory uncertainty, depending on their chosen jurisdiction. Our own records show that over 100 jurisdictions and at least 15 supranational bodies have taken formal steps to regulate cryptofinance products and processes over the last few years. None of the supranational bodies have banned or prohibited cryptofinance, and the large majority of countries have embraced it by increasing regulatory certainty for market participants and promoting innovation in a risk-controlled way. Currently, Switzerland, Liechtenstein, and Singapore offer crypto market participants the highest degree of regulatory certainty. While the EU has just begun a regulatory process that will lead to a similar regulatory certainty in a few years, certain member states, such as France and Germany, have considerably lowered uncertainty in recent years. The same can be said of the UK and several states in the Asia-Pacific region. Other jurisdictions, such as India and Russia, have been sending mixed signals regarding their intended direction, while the US has been struggling, owing to its intricate federal and state-based regulatory system, as well as its directionally unsettled economic policy stance (Congress). At the other end of the spectrum, countries including China, South Korea, Laos, Burundi, and Qatar provide regulatory certainty by prohibiting some or all cryptofinance products and processes. Crypto asset investors and entrepreneurs wishing to develop cryptofinance businesses hedge the risk of undue exposure to regulatory uncertainty by doing business in jurisdictions that offer the highest degree of regulatory certainty. Overall, the trend clearly points to a steady and global reduction of regulatory uncertainty.