CoinShares Report: The State of Global Encryption Regulation

Digital asset management company CoinShares released a report outlining the current state of global crypto regulation.

The following is the full text of the report:

In the past year, it has become clear that the prices of Bitcoin and other digital assets are very sensitive to news of regulatory announcements and government policies designed to control mining and force digital assets to adapt to the existing financial framework. We believe that assessing the potential future impact of regulation involves monitoring around international standards and local regulation.

Last week’s international developments-G7 summit and BIS documents

The 2021 G7 Summit held in Cornwall, UK last weekend did not put forward any new substantive proposals on digital asset regulation. The focus is on regulatory consistency, and it is indicated that future documents will be released in the second half of 2021.

  • Central Bank Digital Currency (CBDC)-“Digital currency and payment innovations have the potential to bring huge benefits, but they also raise public policy and regulatory issues.”
  • Stablecoin-“We reiterate that no global stablecoin project should start operations until the relevant laws, regulations, and regulatory requirements are fully met through proper design and compliance with applicable standards.”

Fortunately, the summit did not accept the “cryptocurrency challenge” proposed by US National Security Advisor John Sulllivan. Before the summit, he outlined his belief that cryptocurrency is at the core of how ransom transactions occur. Fortunately, this FUD (Fear, Uncertainty, and Doubt) has not led to a proposal for stricter regulation of digital assets.

Also released last week was the consultation document of the Basel Committee on Banking Supervision on the prudent treatment of crypto asset exposure. Although the document pointed out that banks have limited risk exposure at present, “the continued growth and innovation of encrypted assets and related services, coupled with the rising interest of some banks, may increase global financial stability concerns and risks to the banking system.”

Regarding regulation and Bitcoin volatility

As the market value of Bitcoin and other digital assets grows, regulatory scrutiny will only escalate. Recent examples include China’s crackdown on illegal Bitcoin mining in Mongolia, and a recent statement from the United States Securities and Exchange Commission (SEC) stating that Bitcoin ETFs are unlikely to emerge in the short term.

A recent Google Trends search for the term “cryptocurrency regulation” highlighted that interest in cryptocurrency regulation peaked during the period of high volatility and price collapse before 2018. Today we do not see the volatility as high as 170% in 2018, and now the volatility is close to 100%. Although the adoption rate by investors is much higher this time, the net new assets of investment products in 2021 currently total US$5.5 billion (US$500 million at the end of 2017), but this may be the main reason for the reinforcement of regulatory review.

CoinShares Report: The State of Global Encryption Regulation

Are regulators the source of price fluctuations? We can see through price movements that Bitcoin and other digital assets are very sensitive to regulatory and government scrutiny, which is understandable given that it is an emerging new asset class. Our analysis looks at the comparison between the Google trending phrase “cryptocurrency regulation” and volatility.

CoinShares Report: The State of Global Encryption Regulation

This means that regulatory review does seem to be a source of volatility. As this asset class gains wider acceptance, regulators have only recently begun to supervise, but there is still uncertainty about how they will supervise digital assets. Either propose to establish a mechanism for digital assets to ban it completely, or change Incorporate into the existing regulatory framework.

Europe gradually accepted

European regulators have gradually accepted digital assets as a new type of asset class. Five major European exchanges now allow digital assets to be quoted in products traded on the exchanges. In turn, this has spawned an extremely healthy ETP ecosystem in Europe, with 12 different suppliers providing more than 35 products for various digital assets, representing an asset management scale (AUM) of USD 7 billion.

European regulators also allow more traditional fund structures to directly access digital assets. Alternative investment funds (AIF) are paying more and more attention to this asset class to provide institutional investors with different forms of active exposure. The German regulatory agency, the Federal Financial Supervisory Authority (BaFin), recently announced that its AIF can directly invest in digital assets. The increasing acceptance of digital assets as an asset class is reflected in the 2021 Global Crypto Hedge Fund Annual Report released recently by PricewaterhouseCoopers (PWC), Elwood and AIMA.

The current situation in the U.S.

Although the “Removal of Digital Innovation Barriers Act” promulgated in March 2021 is expected to make some progress in clarifying the responsible regulatory agencies for various forms of digital assets, it can hardly represent the proposal to establish a comprehensive and transparent new regulatory framework.

At the same time, the U.S. Securities and Exchange Commission (SEC) remains unwavering in its requirements for the approval of ETFs, with particular emphasis on the liquidity of regulated digital asset exchanges to reach a sufficient level. This is still the first condition for ETF approval. There are currently more than 10 Bitcoin and Ethereum ETFs under review by the SEC.

People are optimistic that 2021 will witness US regulators and legislators make substantial progress in understanding digital assets. SEC Chairman Gary Gensler has taught a series of lectures on Bitcoin and Blockchain at the Massachusetts Institute of Technology (MIT). Senator Cynthia Lummis, representing the state of Wyoming, has been a strong advocate of digital assets for many years. She proposed to establish a financial innovation core group in the Senate to better understand digital asset technology and clarify the regulatory framework.


Among Western regulators, the United Kingdom seems to be the only country that insists that the intrinsic value of Bitcoin and other digital assets is zero. From January 6, 2021, the UK Financial Market Conduct Authority (FCA) has banned all derivatives and ETP retail access involving digital assets.

Earlier this year, the United Kingdom issued a general consultation stating that it is closely monitoring developments in this area, including the proposed regulations of the European Commission’s Crypto Assets Market (MiCA). Even if the UK is to follow the MiCA model, it will lag far behind the current level of the EU.

The other two consultations involved imposing additional restrictions on marketing, which would affect all digital assets. One aims to include digital assets in the UK financial promotion system (regulations governing the public offering and advertising of regulated assets such as securities), and the other seeks to approve the regulated financial promotion of complex assets (including digital assets, of course) The entity imposes additional obligations and restrictions. It is not difficult to imagine that it is difficult to market or provide all digital assets to retail investors.

FCA’s attempts to supervise digital asset companies from the perspective of AML/KYC have been troubled. The system was initially launched in January 2020, and the deadline is to register all eligible companies before January 2021. Currently, only 5 companies have been approved, and another 167 companies are waiting for authorization (a large number of applications have been rejected and/ Or withdrawn). These 167 companies have been allowed to continue to operate under a temporary license, which has been extended to March 31, 2022. The next steps of these companies are still unclear.

Finally, the Bank of England (BoE) continues to study, but has not yet decided whether to introduce CBDC in the UK. Last week, the Bank of England released a discussion document “New Forms of Digital Currency”, which is based on the Bank of England’s March 2020 discussion document.


The broader regulatory crackdown on Bitcoin and digital assets remains a risk for investors, and high-pressure methods can cause serious damage to prices. Ironically, the uncertainty surrounding the regulation of encrypted assets may be a key factor in the price volatility of encrypted assets. It is encouraging that we continue to see progressive trends in regulation, although the road is not always smooth.

Posted by:CoinYuppie,Reprinted with attribution to:
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