In the past week, the Sindh High Court in Pakistan held a hearing on the legal status of digital currencies which could lead to a Total ban on cryptocurrency trading combined with sanctions against cryptocurrency exchanges. several days later, the Central Bank of Russia called for both cryptocurrency trading and mining operations to be banned. Both countries could join the growing ranks of nations that have chosen to ban digital assets, which already include China, Turkey, Iran and other jurisdictions.
According to a report from the Library of Congress (LOC), there are currently nine jurisdictions that have implemented an outright ban on cryptocurrencies and 42 with an implied ban. The authors of the report highlight a worrying trend: the number of countries that ban crypto has more than doubled since 2018. These are the countries that banned certain cryptocurrency-related activities or announced their intention to do so between 2021 and early 2022.
The Central Bank of Bolivia (BCB) issued its first cryptocurrency ban resolution at the end of 2020, but it was not until January 13, 2022 that the ban was formally ratified. The text of the most recent ban specifically targets “private initiatives related to the use and marketing of […] cryptoassets”.
The regulator justified the measure for investor protection considerations. He warned of the “potential risks of generating economic losses to […] holders” and stressed the need to protect Bolivians from fraud and scams.
Cryptocurrency transactions have been formally prohibited in the People’s Republic of China since 2019, but it was last year when the government took steps to crack down on cryptocurrency activity in earnest. Several official warnings about the risks associated with investing in cryptocurrencies were followed by a ban on cryptocurrency mining and prohibiting the nation’s banks from facilitating any transactions with digital assets. But the crucial declaration came on September 24, when a group of top state regulators pledged to jointly enforce a ban on all crypto transactions as well as mining.
Apart from the common notions of money laundering and investor protection, Chinese officials played the environmental card in their fight against mining, which is a bold move for a country that contributes up to 26% of global carbon dioxide emissions, of which crypto mining accounts for a marginal part.
On November 11, 2021, the National Ulema Council of Indonesia (MUI), the country’s highest Islamic scholarly body, proclaimed that cryptocurrencies are haram, or prohibited on religious grounds.. The MUI instructions are not legally binding and therefore will not necessarily stop all cryptocurrency trading. However, it could deal a major blow to the cryptocurrency scene in the world’s largest Muslim country and affect future government policies.
The MUI’s decision reflects a common interpretation that has been taking shape in all jurisdictions influenced by the Islamic legal tradition. I know views cryptocurrency activity as gambling, a concept that could be used to define almost any capitalist activity.
On January 20, the religious push against crypto was amplified by other Islamic non-governmental organizations in Indonesia., the Tarjih Council and the Central Executive Tajdid of Muhammadiyah. They confirmed the haram status of cryptocurrencies by issuing a fatwa (a ruling under Islamic law) that focuses on the speculative nature of cryptocurrencies and their inability to serve as a medium of exchange under Islamic legal norms. .
On September 9, 2021, the Central Bank of Nepal (Nepal Rastra Bank, NRB) issued a notice titled “Cryptocurrency transactions are illegal”. The regulator, referencing the 2019 national foreign exchange law, declared cryptocurrency trading, mining, and “encouragement of illegal activities” as punishable by law. The NRB separately underlined that individual users will also be liable for violations related to cryptocurrency trading.
A statement by Ramu Paudel, the executive director of the Department of Foreign Exchange Management of the NRB, emphasized the threat of “scam” to the general population.
On February 12, 2021 There was a 180-degree turn in Nigeria’s national policy on digital assets, when the Nigerian Securities Commission announced the suspension of all plans to regulate cryptocurrencies, following the ban introduced by the central bank a week earlier. The nation’s central bank ordered commercial banks to close all crypto-related accounts and warned of penalties for non-compliance.
The CBN’s explanation for this crackdown mentions a number of known concerns, such as price volatility and the potential for money laundering and terrorist financing. At the same time, CBN Governor Godwin Emefiele stated that the central bank was still interested in digital currencies and that the government was exploring various policy scenarios.
On April 20, 2021, the price of Bitcoin (BTC) dropped 5% after Turkey’s central bank declared that “cryptocurrencies and other such digital assets” could not be legally used to pay for goods and services.
According to the explanation, the use of cryptocurrencies could “cause unrecoverable losses for the parties to the transactions. […] and include elements that can undermine confidence in the methods and instruments currently used in payments”. But that was only the beginning: what followed was a series of arrests of crypto fraud suspects, plus Turkish President Recep Tayyip Erdoğan personally declaring war on crypto.
In December 2021, Erdoğan announced that the national regulation of cryptocurrencies had already been drafted and would soon be introduced in parliament.. In an exciting twist, the president noted that the legislation had been designed with input from stakeholders in the cryptocurrency industry. The exact nature of the regulatory framework remains unknown.
In a report from January 20, 2022, intended for public discussion, the Central Bank of Russia proposed a complete ban on cryptocurrency trading on the OTC market (OTC), of cryptocurrency exchanges, both centralized and peer-to-peer, as well as a ban on crypto mining. The regulator has also advanced the idea of imposing penalties for violating these norms.
In the justification part of the report, the CBR compared crypto assets to Ponzi schemes and cited concerns such as volatility and funding of illegal activities, as well as undermining “the environmental agenda of the Russian Federation”. But perhaps the most relevant of the justifications was the concern over the potential threat to Russia’s “financial sovereignty”.
How bad is this?
It’s hard not to notice that many of the countries on this list represent some of the most vibrant cryptocurrency markets.: China needs no introduction; Nigeria was the largest source of bitcoin trading volume in Africa; Indonesia was on Binance’s radar as an expansion target; and Turkey showed growing interest in bitcoin amid the lira’s free fall.
When cryptocurrency awareness and adoption reach such levels, it is difficult to ban a technology whose advantages are already known to the general public. It is also worth mentioning that, in many cases, The authorities’ message around cryptocurrencies has been ambiguous, with officials publicly expressing interest in the potential of digital assets before and even after the ban.
Caroline Malcolm, head of international policy at blockchain data firm Chainalysis, told Cointelegraph that it is important to be clear that “only in very few cases is there actually a total banMalcolm added that, in many cases, government authorities have limited the use of cryptocurrencies for payments, but allow them for trading or investment purposes.
Why do governments seek to ban cryptocurrencies?
Regulators’ motivations for banning some or all types of cryptocurrency trading can be driven by a variety of considerations, although some recurring patterns are visible.
Kay Khemani, CEO of Spectre.ai trading platform, highlighted the degree of political control within countries seeking to establish bans on cryptocurrencies. Khemani commented that:
The countries that establish absolute prohibitions are usually those in which the State exercises greater control over society and the economy. If the largest and most prominent economies begin to adopt and integrate decentralized assets into their financial framework, nations that previously banned cryptocurrencies will most likely think twice.
The main concern of the States, often hidden behind declared concern for the financial security of the general population, is the pressure that digital currencies put on sovereign fiat money and potential central bank digital currencies (CBDCs), for its acronym in English), especially in weaker economies. As Sebastian Markowsky, chief strategy officer at Bitcoin ATM provider Coinsource, told Cointelegraph:
A general pattern suggests that countries with a less stable fiat currency tend to have high cryptocurrency adoption rates, and thus end up with crypto bans, as governments want to keep people invested in fiat. […] In China, the wide deployment of the CBDC digital yuan is rumored to be the real reason for the cryptocurrency ban.
Caroline Malcolm added that the motives behind government cryptocurrency policies may change over time and therefore it is important not to assume that the positions these countries take today will remain unchanged forever.
The hope is that, at least in some of the cases mentioned, the strict limitation measures against digital assets end up being a pause that regulators will have taken to create a nuanced and thoughtful regulatory framework.