Crypto Regulations – Permissive vs Restrictive Approaches

Cryptocurrency regulations have become a crucial global topic, with countries adopting diverse strategies to balance innovation and risk management. Some governments have been rolling out permissive approaches, while others are rather restrictive, revealing how differently countries are sizing up crypto's promise (and potential chaos).

In 2024, the world is seeing crypto regulations finally starting to sync up, which is great news for creating a more stable market and boosting investor trust.

Regulators across the globe are teaming up to tackle the unique challenges of the crypto space. A big player in this effort is the Financial Action Task Force (FATF), which has rolled out anti-money laundering (AML) and counter-terrorism financing (CTF) guidelines. These measures are inspiring countries to craft similar rules, bringing a more consistent approach to how crypto exchanges are managed worldwide.

Overview of Crypto Regulations Over Time

Early Days of Crypto Regulation

Crypto rules kicked off because digital currencies brought a mix of promise and potential risks. Back in the early 2010s, as Bitcoin started gaining traction, governments and regulators began paying closer attention. Their first concerns were stopping money laundering and cutting off funding for terrorism.

In 2013, the U.S. Financial Crimes Enforcement Network (FinCEN) stepped in, setting rules that made crypto exchanges and wallet providers follow anti-money laundering (AML) and anti-terrorism financing (CTF) laws. These early efforts tried to block illegal uses of crypto without crushing innovation.

Key Moments in Crypto Regulation

2015: The SEC’s DAO Report
The U.S. Securities and Exchange Commission (SEC) took a closer look at the Decentralized Autonomous Organization (DAO), a venture capital fund running on Ethereum. They decided DAO tokens were basically securities, meaning they had to follow stock market rules. This was a game-changer—it showed that some cryptocurrencies needed to play by existing financial laws.

2017: The ICO Craze and the Crackdowns
The 2017 Initial Coin Offering (ICO) boom turned heads—and raised red flags. Countries like China and South Korea banned or heavily restricted ICOs to protect people from scams. In the U.S., the SEC cracked down on non-compliant projects, making it clear that flying under the radar wasn’t an option. This era highlighted the need for better rules around using crypto to raise money.

2020: The EU’s MiCA Framework
The European Union took a huge step forward with its Markets in Crypto-Assets (MiCA) regulation. This plan aims to unify crypto rules across EU countries, focusing on fair markets, investor protection, and stablecoin regulation. MiCA is a big push toward consistent, cross-border crypto laws.

These milestones show how crypto regulation has evolved from basic oversight to more refined, comprehensive frameworks.

Despite some global trends in crypto regulation, regional differences still make a big splash.

The U.S. Securities and Exchange Commission (SEC) has been all over Initial Coin Offerings (ICOs), labeling some cryptocurrencies as securities. Meanwhile, the European Union has been laying out a solid rulebook for the space with MiCA.

In Asia, it’s a mixed bag: places like Singapore and Japan are all-in with clear, crypto-friendly rules, while China’s taken a hardline approach, banning loads of crypto activities outright.

Countries With Permissive Crypto Approaches

Permissive regulatory frameworks aim to foster innovation and economic growth by accommodating the cryptocurrency industry under clear, enabling regulations.

European Union (EU)

In 2023, the European Union rolled out the Markets in Crypto-Assets (MiCA) regulation, a detailed set of rules covering cryptocurrencies, stablecoins, and associated services. MiCA prioritizes consumer protection, financial stability, and anti-money laundering (AML) measures while providing a harmonized legal environment for crypto firms. This approach positions the EU as a global leader in crypto regulation, emphasizing innovation within a secure framework.

Additionally, the regulation excludes non-fungible tokens (NFTs) unless their projects relate to various crypto-assets categories.

Japan

Japan has long embraced cryptocurrencies, recognizing them as legal property under its Payment Services Act. Exchanges must register with the Financial Services Agency and comply with AML/CFT standards. Japan’s Virtual Currency Exchange Association also ensures industry compliance with strict self-regulatory guidelines. Moreover, Japan's tax system classifies profits from cryptocurrency trading as miscellaneous income.

This proactive stance has allowed Japan to become a major hub for crypto innovation.

United Kingdom

In 2023, the UK enacted the Financial Services and Markets Act, extending regulatory oversight to all crypto assets. This move included requirements for exchanges to comply with AML and Know Your Customer (KYC) regulations. While firm on consumer protection, the UK encourages the growth of a regulated crypto market, reflecting its ambition to become a global crypto hub.

Australia

Australia’s crypto regulations are in flux as the government works to keep up with the fast-growing crypto industry. While generally supportive of fintech innovation, including blockchain and digital currencies, Australia lacks dedicated laws for cryptocurrencies. Instead, the sector largely operates under existing financial regulations like the Corporations Act.

Of the roughly 400 registered crypto exchanges in the country, only about 40 are fully licensed by ASIC, exposing a gap in regulatory clarity that concerns many in the industry. Critics point out that Australia risks falling behind other countries in crafting clear and supportive crypto rules.

United States

Recent judicial decisions have offered support to the cryptocurrency landscape. Notably, a court determined that XRP transactions made by Ripple on exchanges do not constitute securities, potentially shaping the classification of other digital assets. Furthermore, the approval of Bitcoin and Ethereum Spot ETFs signals a meaningful advance toward integrating cryptocurrencies into regulated financial markets.
 

Singapore

Singapore provides a well-rounded approach, recognizing cryptocurrencies as property while not granting them a legal tender status. The Monetary Authority of Singapore (MAS) enforces licensing and operational standards, particularly for stablecoin issuers. The absence of capital gains tax for long-term holdings further enhances its reputation as a crypto-friendly jurisdiction.

Source: World Economic Forum

Countries with Restrictive Crypto Approaches

In contrast, restrictive frameworks seek to minimize risks associated with cryptocurrencies, such as fraud, money laundering, and financial instability, often at the expense of stifling innovation.

China

Despite the fact that China’s Civil Code (2020) recognized cryptocurrency as inheritable property, the country has outright banned cryptocurrencies, labeling them as tools for speculation and illicit finance. This includes prohibiting crypto trading platforms and mining activities. Instead, China has focused on developing its own central bank digital currency (CBDC), the digital yuan, as a state-controlled alternative.

India

India maintains a strict tax regime for crypto transactions, imposing a 30% flat tax on gains and a 1% tax deducted at source (TDS) on transactions. These measures have significantly reduced crypto trading volumes in the country. While not a complete ban, India's policies have created a challenging environment for the crypto industry.

Turkey

Turkey banned cryptocurrency payments in 2021, citing concerns over financial stability. The government views crypto assets as speculative investments and restricts their use for transactions, though individuals can still trade cryptocurrencies.

Nigeria

Despite high crypto adoption rates among its population, Nigeria’s central bank banned financial institutions from facilitating crypto-related transactions. The move reflects concerns over capital flight and unregulated financial activity, even as citizens continue to trade crypto via peer-to-peer platforms.

Key Trends in Global Regulation
 

• Stablecoin oversight – stablecoins, often pegged to fiat currencies, have drawn regulatory attention. The EU’s MiCA requires issuers to meet strict reserve and operational standards, while Singapore has implemented criteria for MAS-regulated stablecoins.
• Consumer protection – many jurisdictions emphasize protecting investors through mandatory disclosure requirements and enhanced security measures for crypto exchanges. For instance, Canada's regulation treats crypto firms as money service businesses, subjecting them to strict compliance protocols.
• AML/CFT compliance – combating financial crime is a shared priority, with nearly all major economies enforcing AML/CFT standards. The Travel Rule, requiring information-sharing on crypto transactions, is expanding globally.
• CBDCs as alternatives – countries like China and Nigeria are advancing CBDCs to provide government-backed digital alternatives to decentralized cryptocurrencies.

Key Takeaways

The permissive and restrictive dichotomy in crypto regulation underscores the broader challenge of balancing innovation with risk management.

Permissive models, such as those in Japan and the EU, showcase how clear regulations can attract investment and stimulate technological development while addressing risks.

Restrictive approaches, seen in China and India, reflect fears of economic destabilization and illicit use, but they often fail to curb crypto activities entirely, as citizens turn to alternative methods like peer-to-peer trading.

The global regulatory landscape continues to evolve as countries refine their approaches, influenced by technological advancements and emerging risks.