Ever since I started commenting publicly, I have never received as much interest as I did when I wrote (and spoke) about the perils of bitcoin and crypto-assets. Even though I have always been careful to highlight that I was not an investment adviser, I have been besieged by proponents and opponents alike clamouring for not only their opinion, but also why these opinions need to be grounded in reality.
It amazes me how this new phenomenon has had such an emotional resonance with the public at large. Nonetheless, I have attempted to parse through some of the international legal grounds for this innovation.
Even a cursory glance at international legal publications over the last year reveal how legal jurisdictions have dealt with crypto-assets. In the US, the IRS has ruled repeatedly that crypto-assets will attract a capital-gains tax, already regulating them in line with other asset classes. This has been replicated in other countries, from Brazil to Norway and beyond.
With regards to anonymity, from a counter-party standpoint, it has become increasingly difficult for banks to deal with these crypto-asset holders, without filling a detailed KYC (know your customer) form. This has taken away the anonymity that the asset class was offering and which attracted money laundering concerns in the process.
In the UK and Singapore, it is not even treated as an asset class, but rather as a good or service, and accordingly attracts VAT from the tax authorities. And in Canada, it has been subject to stringent anti-money laundering rules, causing counter-parties to be leery of its usage, given its higher handling costs.
Crackdowns
Countries that have not yet put in place detailed legislation for this phenomenon have repeatedly warned the public about its usage. I have previously highlighted the fact that the UAE Central Bank was the first in the region to do so.
Many Asian countries still regard trading in these crypto-assets to be illegal, such as Malaysia and Indonesia. And there have been various crackdowns throughout the world, where reasons have ranged from tax evasion, to money laundering and hacking. Even as the US has taken steps to have these publicly traded in commercial futures exchanges through standardised contracts, volumes have remained low.
In Dubai, where there have been offers by developers to accept bitcoin as payment for real estate, anecdotal evidence suggests that these have been met with a muted response for the most part.
All of the above suggests that there is still considerable debate as to how regulation is going to proceed on this front. Historically speaking, this is not new. Every time there is innovation in any industry, it takes time for the regulatory landscape to adjust accordingly and provide the public with the tools to be protected from its abuse of usage.
Dubai innovation
At the same time, innovation — the very fuel that lights the fire of the knowledge economy — demands that there be initial adoption of the innovation. This invites continued experimentation on the one hand and keeps the economy innovative on the other.
Dubai is known for both its energy in innovation as well as its proactive nature making it a regional and international business hub. So it comes as no surprise that there has been considerable debate on crypto-assets.
However, having an innovative culture does not necessarily mean that every innovation should be adopted or that it is good. It is here that my advice has always been one of caution. All the legal news dictates that there remains considerable uncertainty surrounding this innovation, and that its implications are yet to be fully understood.
What we do know is that as regulatory oversight has increased, the ability to deal with these crypto-assets has become more difficult, suggesting that there is yet more mutations that needs to take place before it can be widely adopted, if at all. Accordingly, from an international legal framework as well, the best advice that can be given at the present time is to watch from the sidelines.
The writer is Senior Partner at NM Advocates, which has a joint venture with GCP.
