Lagarde Says Crypto Regulation Inevitable

International Monetary Fund chief Christine Lagarde says it’s only a matter of time before cryptocurrencies come under government regulation.

“It’s inevitable,” she told CNNMoney. “It’s clearly a domain where we need international regulation and proper supervision.”

“There is probably quite a bit of dark activity (in cryptocurrencies),” she added at the World Government Summit in Dubai on Sunday.

Lagarde said that the IMF is actively trying to prevent digital currencies from being used to launder money or finance terrorism. But she argued that regulators need to focus less on entities, and more on activities—who is doing what, and whether they’re properly licensed and supervised.

Digital currencies have largely operated in a regulatory vacuum since bitcoin’s debut in 2009. But governments and central banks are starting to pay closer attention, warning investors about potential scams.

In December, the US Securities and Exchange Commission and the Federal Bureau of Investigation started to crack down on alleged fraud in fundraising by some cryptocurrency companies and traders.

In Asia, where cryptocurrency is particularly popular, China and South Korea have both cracked down on cryptocurrency trading. Concerns about new restrictions, and rumors over a potential ban in India, have fueled volatility in digital currency prices.

Last summer, Japan became one of the first countries to formally recognize cryptocurrencies as legal tender. Now, it has announced new tax measures to govern the trade, sale and exchange of digital assets.

In Japan, capital gains on cryptocurrency transactions are deemed “miscellaneous income”, according to a Dec. 1 ruling by the National Tax Agency. As such, cryptocurrency investors will be taxed 15% to 55% on their profits this year.

Top government officials at the World Economic Forum in Davos last month also signaled that more regulation could be on its way. 

The value of bitcoin plunged last month, amid fears that trading was about to be banned in South Korea. It then stabilized briefly, before plummeting again.

The volatile cryptocurrency hit a record high when it passed $19,850 in mid-December, and its value has shifted unpredictably ever since, with frequent wild drops and recoveries.

The rapid drops are partly the result of continuing fears about regulation, as well as anxiety provoked by a series of high-profile thefts.

Its value tumbled spectacularly at the start of February, falling from $10,000 to $6,000 in four days. However, it now appears to be recovering.