Kazakhstan is starting to distance itself from its reputation as a friendly country for crypto-oriented business after the Financial Monitoring Agency blocked 980 crypto exchanges previously active in the country. These bans occurred after it became evident that the companies offered crypto services without a license. Additionally, nine crypto exchanges are under investigation for money laundering activities connected to China. Allegedly, $36.7 million has been laundered via illegal operations.
The regulatory oversight of crypto companies is the responsibility of the Astana International Financial Center (AIFC). The agency approves licenses for crypto companies desiring to operate in the country. It ensures these entities abide by the requirements outlined in the Digital Assets Law implemented in February 2023.
The only regulated crypto exchanges in this Central Asian country are ByBit, Upbit, Binance, ATAIXt, CaspianEx, Biteeu, and Xignal&MT. One of the biggest names in the industry to be snubbed by the FMA was Coinbase. The company did not comply with the new laws and was excluded from the portfolio of legal crypto exchanges in November 2023. Although there were indications that Coinbase would comply with the regulatory requirements, a month after its services got blocked, there is still no announcement about Coinbase's intent to re-enter the market and be fully compliant with the regulations.
Stricter measures on the horizon
The rise in hacking and theft of digital assets and the series of bankruptcy filings of crypto exchanges and investment companies, such as FTX's collapse in 2022, are forcing Kazakhstan authorities to reconsider their hands-off approach towards crypto. Efforts have picked up steam in 2023, with a more serious approach to creating a regulatory framework for crypto-oriented businesses.
The most significant step was the introduction of the Digital Assets Law, which banned trading or other related blockchain activities without a license from The Astana International Financial Center. The laws aim to safeguard users and investors from scams, but analysts fear that the stricter measures can stagnate growth, especially in the mining sector of the industry.
Crypto miners are leaving Kazakhstan
One of the most significant changes in the country's blockchain landscape is the status of crypto miners. Kazakhstan eagerly welcomed miners and crypto companies following China's 2021 ban. However, the climate is shifting in a different direction in 2023.
Blockchain miners are under pressure after a new law in February 2023 placed limits on electricity usage by blockchain miners. The global energy crisis has increased prices, and the government fears that excessive levels of electricity consumption by illegal miners can create energy shortages.
The decline in mining operations is already becoming evident from a comparison of Kazakhstan's contribution to the Bitcoin mining hash rate, which in 2021 was at 18% but has gone down to 4% in 2023. Crypto mining firms are migrating to other regions where they will not be burdened with high energy consumption taxes.
