Alberto Cellini a financial analyst from General Electric, maps the current regulatory landscape and discusses the trajectory of ICO regulation around the globe.

Global blockchain regulation is currently an underdeveloped patchwork of confusing and contradictory policies that vary wildly from jurisdiction to jurisdiction. It is highly likely that certain countries such as Switzerland, Singapore and Gibraltar will set precedents from which more nations follow. A result of this will be the consolidation of regulatory blockchain policies.

It has now reached the point whereby the importance of blockchain technology and its successful regulation is undeniable. Eva A. Kaili a member of the European Parliament who chairs the Science and Technology Options Assessment (STOA) puts the regulatory challenge in perspective:

“Blockchain is an exercise of institutional transformation in which no citizen and no politician can stay indifferent”

Eva A. Kaili

Probably the most pressing agenda for regulators are Initial Coin Offerings (ICOs). The ICO industry took off from spring 2017 and although the dynamics of the market have changed the total USD raised by ICOs continues to climb. ICOs raised a staggering $1.5Bn in January alone, more than the amount raised by the entire Venture Capital industry in 2017.

Trading and speculation is undoubtedly contributing to a significant proportion of this market. Regardless of the intentions this size of market cannot go ignored for much longer; only now are we starting to see pragmatic approaches from governments to integrate blockchain innovation into the economy. Before we look at the vanguard lets take a look at past attempts to regulate this space.

Regulation To Date

Public blockchains are designed to transfer value in a decentralized, pseudo-anonymous way and this second feature is what has made Bitcoin and cryptos a difficult asset to regulate. Fear that the anonymity afforded by Bitcoin and Cryptos could supplement cash as means to money launder and finance terrorism amongst other illegal activities has stood at the top of most regulators concerns. Having said that only 0.16% of 2017 money laundering reports came from crypto exchanges in Japan.

The knee jerk reaction from regulatory bodies around the globe as ranged wildly from fierce obstruction in China a misguided heavy hand such as the BitLicense in New York. Governments that start encouraging blockchain development stand to gain a significant share of this nascent global market. As well as secure this share with first mover advantage, as Switzerland’s ‘Crypto Valley appears to be taking.

Self-regulation In The UK

Despite Mark Carney recently taking a rather dour view of Crypto-Assets progress is being made in the UK. The Financial Times recently reported that seven of the largest crypto companies are forming a UK cryptocurrency trade body called CryptoUK that aims to ‘self-regulate’ the sector. CryptoUK chair Iqbal Gandham said that the body has been established to “promote best practice and to work with government and regulators”. All the members will sign up for a code of conduct that obliges the companies to adhere to a set of ethics as well as guarantee greater due diligence to prevent illegal activity.

The trade body includes UK based crypto companies involved with professional investments, trading and analysis such as Coinbase, BlockEx, CEX.IO, CoinShares and CommerceBlock, eToro and CryptoCompare. CryptoUK is a step in the right direction for the UK but the country remains behind Switzerland and Gibraltar. However, London is arguably the financial capital of the world and as such it has the luxury of adopting successful regulation at a later stage to win back business from less financially developed areas such as Zug or Gibraltar.


The US regulation is dominated by the SEC and to some extent the CFTC. They appear to be taking a slower and more measured approach. It is clear they are in the process of picking off the ‘low-hanging fruit’ and setting precedents on simple cases such as the Munchee ICO and the DAO. Munchee was deemed a security as it gave investors an expectation of profits, the DAO infamously got hacked so the SEC said they would not prosecute but did state that the DAO resembled a fund and would therefore be classed a security.

It is safe to say that an ICO which may be a security, will be classed a security. This is hampering the likelihood of the US securing any meaningful share of this growing market. Selling a security token to US investors would require registering with the SEC, which is an expensive and lengthy process, it also means you can only sell to investors that classify as high net worth individuals. However, this is likely to become attractive to the existing VC ecosystem that traditionally only allows accredited investors anyway.


Asia has had the most exuberant demand for crypto over 2017 with premiums hitting 50% in South Korea vs USD for bitcoin. It seems strange therefore that Asian regulation is the most varied. China has always struggled to control the fast growing and potentially disruptive blockchain sector. Their main fears reside around capital controls and how bitcoin allows citizens to work around the strict $50,000 limit. Most of the Chinese exchanges were shut down over 2017. More recently announced is the plan to limit electricity supply to Bitcoin miners. With the hope of cutting off the supply of new bitcoins to China. As there are still many ways for bitcoin miners to sell on OTC desks. China has also banned ICOs, making the sale, promotion or purchase illegal.

Even the much more progressive, South Korea, tried to slow down the cryptocurrency market by mentioning plans to halt trading. However, after massive fallout the plan turned out to be hot air and it has been confirmed South Korea has no intention to ban crypto trading.

Japan has had the most positive response to date and regulators have said they deem bitcoin a form of legal tender. This has opened the doors to crypto payment processors such as Coincheck onboarding over 260,000 merchants last year alone. 16 Japanese exchanges have formed a self-regulatory body in the wake of the $530 million Coincheck hack. The self-regulatory group has notably registered with Japan’s Financial Services Association (FSA).

The MAS (Monetary Authority of Singapore) in Singapore published its paper on ICO regulation in late 2017. The report states that digital tokens may be regulated by the MAS if the digital tokens are capital markets products under the SFA. Overall this hasn’t given too much confidence to entrepreneurs and as such the number of ICO projects settling in Singapore is stagnating and losing market shares to the more progressive Switzerland and Gibraltar.

Gibraltar Is Blockchain Friendly

Gibraltar released the Digital Ledger Technology (DLT) regulatory framework that went into effect on January 1st. The regulation is an expansion of the current Financial Services Act and requires all blockchain related commercial activity must be licensed by the Gibraltar Financial Services Commission (GFSC).

If blockchain businesses are granted a license by the GFSC they enjoy extensive tax benefits and a flexible approach on novel business models and products.

GFSC intention is to capture a larger share of the blockchain market in exchange by creating safe haven for crypto start-ups that can open their bank accounts without the fear of it being frozen or exchanges that can exclude the possibility of being shut down overnight. As well as the benefits of residing in a well-known tax haven.


The case for Switzerland becoming a hub of blockchain innovation is strong. ‘Crypto Valley’, based in Zug is currently home to dozens of the strongest crypto start-ups. Thanks to favourable tax breaks and regulatory certainty ‘crypto valley’ is billing itself as the next Silicon Valley. The Swiss government recently released more concrete guidelines on ICOs. It divided ICOs into three categories:

Payment tokens are synonymous with cryptocurrencies and have no further functions or links to other development projects.

Utility tokens are tokens which are intended to provide digital access to an application or service.

Asset tokens represent assets such as participations in real physical companies, or earnings streams, or an entitlement to dividends or interest payments such as Gift Off. In terms of their economic function, the tokens are analogous to equities, bonds or derivatives.

This taxonomy has been well thought out and is simple enough to be implemented quickly and widely. It goes a long way to clearing up the mixed messages on ICO taxonomy as well as providing certainty to dealing with securities.

Where Next?

As with many government organisations regulatory groups tend to be inflexible and sluggish, these characteristics are brought to the surface when new paradigms emerge from the tech sector. Just as the internet created daunting regulatory and legal questions so too will blockchain technology. Over the coming years we will see whether governments forcefully bend the existing frameworks around this sector, or, craft new taxonomies, definitions, laws and regulations. I suspect the optimal scenario sits between the two approaches.

To quote Eva A. Kaili again:  a member of the European Parliament who chairs the Science and Technology Options Assessment (STOA) puts the regulatory challenge in perspective:

“Blockchain is a highly political subject. It is not economical. It is not about speculators making money, but about reinventing the concept of trust in a period where our societies need trust more than ever to maintain and improve social coherence.”

Eva A. Kaili

Just as the internet went through the hype cycle so too will blockchain. I suspect we are near the top of the hype cycle and it is on the slope down that regulators will be able to step back, cut through the hype and see blockchain technology for what it will become.