Despite decentralization (and, to some extent, deregulation) being an important feature of blockchain technology, government intervention—as with any new field or industry—is inevitable.
However, securities laws and financial and professional regulation have been historically slow in adapting to technological advancements, and it’s no different for digital currencies and blockchain technology, mainly because of fear of money laundering. While some countries have made considerable progress in this area, others are seriously lagging behind.
In this blog post, we look into how notable countries have been regulating digital currency as payment instruments within their jurisdictions—from countries that may be considered a crypto believer’s paradise to those where it has been banned or made illegal because of money laundering risks.
Welcome to crypto paradise. This September 2021, El Salvador formally adopted Bitcoin as a legal tender in the country. This means that money services businesses in the small Central American country are now required to accept Bitcoins as payment instruments or digital representation of money for goods and services as part of their securities laws and money transmission laws.
Its current president, Nayib Bukele, has also been a vocal supporter of digital currencies and even proposed the construction of a “Bitcoin City” near a volcano to draw its geothermal energy for Bitcoin mining.
Yes. El Salvador became the first nation to accept Bitcoin as legal cash under the money transmission laws. The law also mandated that companies and virtual asset service providers accept it as one of the forms of payment instruments.
The government, along with the financial stability oversight council and commodity futures trading commission, established Bitcoin as a legal tender (also known as Bitcoin legal tender) in El Salvador on June 9, 2021. It was published in their official gazette. The law became effective on September 7, 2021.
No. This is good news for people concerned about paying taxes on their digital assets but are equally wary about crypto regulation.
The government removed taxes related to digital assets to promote El Salvador as one of the few nations without a cryptocurrency tax. Eventually, they hope to draw more investors to their country using this move.
The Swiss government’s attitude towards digital currencies may be described as encouraging and positive. Switzerland is home to some of the world's largest initial coin offerings (ICOs) due to its crypto-friendly regulations and the technological expertise of its government regulators. Its Zug-Zurich area has been dubbed “Crypto Valley” and is considered to be one of the world’s leading ecosystems for blockchain or distributed ledger technology.
Short answer: Yes. Despite not having a specific legal framework and monetary authority, Switzerland has a favorable and alluring legal financial system for cryptographic assets. The regulatory framework for the issuance and trade of cryptocurrencies has existed for several years and counting.
Private investors in Switzerland are exempt from capital gains tax on their cryptocurrency profits. The only individuals required to pay capital gains tax on their trading and investment profits are those deemed self-employed traders or engaging in a business-like activity.
Switzerland has legalized cryptocurrency. There are no restrictions on using virtual currency units by virtual currency businesses to buy, sell, or pay for products and services in Switzerland. Activities involving cryptocurrency are not subject to specific authorization.
You may check out different crypto exchanges/cryptocurrency exchanges/virtual currency exchange, trading platforms, and financial systems that mainly target customers who want to get cryptocurrency in Switzerland so you can get started. One of the great platforms out there is eToro because it supports coins, such as Ethereum, Bitcoin, and Litecoin, among others.
Here is another crypto-friendly European country on the list. In October 2019, Lichtenstein passed the Token and Trusted Technology Service Provider Act to attract crypto companies and investments in the country.
The law is a comprehensive regulation of the crypto and token economy, providing clarity on the legal status and treatment of cryptocurrencies, tokens, and other digital assets or virtual assets.
With its digital assets and virtual assets law, Luxembourg officially started recognizing cryptocurrency as a legitimate asset in 2020. There are no restrictions on trading crypto and low taxes, so quite a few companies have started setting up headquarters in Luxembourg.
Yes. The production of virtual currencies or crypto-assets by virtual currency businesses is not subject to any specific statutory licensing requirements. Hence, mining cryptocurrencies is not restricted in Luxembourg.
No. Currently, the government of Luxembourg does not have a set of specific tax laws that require it to tax cryptocurrencies.
The CSSF (Commission de Surveillance du Secteur Financier), which oversees cryptocurrency exchanges and virtual currency businesses and platforms in Luxembourg, requires new money services businesses or virtual currency businesses (such as service providers or intermediaries that are receiving virtual currency or transferring cryptocurrencies) to obtain payment instruments and payment institutions license if they want to start trading as soon as possible.
There are at least 10 countries with lax laws related to crypto exchanges and other types of digital currency and transactions, but Portugal seems to have the least number of laws among the others.
Due to its lax approach to taxing Bitcoin investors, Portugal is one of the most crypto-friendly nations in the world. Profits from trading and investing are not subject to capital gains tax. However, note that income gained in cryptocurrencies is taxed as income.
Due to their unstable fiat currencies and foreign currency systems, Portugal has become a popular destination for crypto users. The Portuguese Public Ministry’s Financial Crimes unit has publicly supported Bitcoin and blockchain technology. Portugal has even started incorporating the blockchain into public services and online voting.
Japan has a progressive attitude toward crypto regulation. For instance, the country’s Payment Services Act considers coins and “utility tokens” as property. Hence, they are not covered by securities law which often has stricter exchange regulations.
In fact, this delineation is made clear by Japan’s Financial Instrument and Exchange Act which differentiates a crypto asset from that of a “security token,” which is a digital representation of a company share, a financial interest, or some other form of security. Security tokens are subject to securities regulation, while crypto assets and properties are not.
On the other hand, non-fungible tokens (NFTs), which do not have a similar function to those mentioned above, are not presently covered by the present regulatory regime.
The mere use of cryptocurrencies and tokens as a substitute for money or a medium of exchange (such as foreign currency) is not regulated in Germany. However, when other financial activities like the deposit, investment, and commercial trading of crypto are involved, licensing requirements may come into play to avoid problems such as money laundering. German laws on banking, bank secrecy act, anti-money laundering, and investment activities will thus apply to these types of crypto transactions.
India’s legal view on crypto was seemingly liberalized in 2020 when the Indian Supreme Court India reversed a 2018 circular from the Reserve Bank of India which banned financial institutions from dealing with, facilitating, or transacting with crypto.
Exchange regulations on crypto remain hazy in India, and it is uncertain whether government institutions will adopt a stricter or more liberal approach in the future. It is also uncertain at this point if a business that sells convertible virtual currency will be considered legal.
UK law, like most jurisdictions, doesn’t consider crypto as legal tender but rather as a form of property. The state of cryptocurrency and other digital assets is also uncertain in the UK. Still, there have been positive indicators that government agencies will adopt a more progressive policy on the subject matter.
In 2018, the UK government assembled a Cryptoassets Task Force composed of representatives from the UK Treasury, the Financial Conduct Authority, and the Bank of England. In its final report, the Crypto Task Force recognized crypto’s “potential to deliver significant benefits in financial services and other sectors in the future” and stated that it “will continue to support its development” in the future.
In 2019, the UK’s HM Revenue & Customs published Policy Papers for crypto firms and individuals to update the tax guidelines and regulatory framework for crypto taxes on securities tokens and exchange tokens. Included in these guidelines are the civil and criminal penalties. and the reporting requirements for both individuals and digital security institutions.
As of this year, all crypto asset firms (including exchanges) with a presence or market product in the country must register with the Financial Conduct Authority and comply with AML/CFT reporting and consumer protection and financial protection obligations, as well as the latest FATF guidelines.
US laws, cryptocurrency regulations, and regulatory framework are also unclear under the Biden administration. But they appear to lean towards more stringent regulations. The SEC, for example, has stated that coins or tokens offered and/or sold in Initial Coin Offerings (ICOs) may be deemed as “securities” (digital tokens or security token offerings) and be regulated as such.
On the other hand, the IRS treats “virtual currency” as property for income tax purposes and has stated that crypto transactions may have “tax consequences that may result in a tax liability.”
Meanwhile, a provision in the recently enacted Infrastructure Investment and Jobs Act (IIJA) mandated “brokers” of digital assets to report certain information to the IRS. There are also several pending bills in Congress which we covered in our previous blog post.
A crypto millionaire would do well to avoid China as a retirement destination due to its internal revenue code, among other financial stability risks. While the ownership or use of crypto is not technically prohibited or illegal in the country, the regulation on the matter is very stringent, with consumer protection as one of the main goals.
In 2017, the People’s Bank of China, together with other state-level authorities, issued a joint circular and warned that initial coin offerings (“ICOs”) may be regarded as “illegal financing activities” and may warrant several reporting requirements.
Moreover, while cryptocurrency mining and other similar financial services have not been made expressly illegal in the country, the Chinese government is actively discouraging such activities.
In 2018, a Chinese agency dealing with “Internet Financial Risk” encouraged local governments to assist crypto mining companies to formally exit the mining business. Mining activities are also monitored in the country to ensure that no one will commit money laundering.
Earlier this year, the National Development & Reform Commission spoke against bitcoin for producing carbon emissions. In this most recent crackdown on crypto mining, the NDRC said they would be increasing energy prices for any institution participating in crypto mining.
Lastly, cryptocurrency exchanges and trading platforms are banned in the country to decrease the risk of having money laundering cases. Because of this nationwide ban, holders of crypto coins and tokens in China have to perform their crypto derivatives trading activities offshore.
Egypt beats China in terms of being inhospitable and unwelcoming to crypto and blockchain technology. In 2018, Egypt’s main Islamic legal advisory body, the Dar al-Ifta al Misriyyah, declared crypto as prohibited under Islamic law.
The organization or person who may be involved may be subject to investigation by the designated financial crimes enforcement network if there is any form of suspicious activity related to crypto, blockchain, and distributed ledger technology. One of the main reasons they had to do this is to avoid crimes, such as money laundering.
Although this fatwa (legal opinion on Islamic law) is not legally binding, the country’s banking and securities laws in September 2020 were amended to prohibit cryptocurrency transactions through electronic transfer without the appropriate license from the Central bank of Egypt. Hence, regulations on crypto in Egypt continue to be restrictive.
The Financial Services Agency said in December 2021 that it would put forth legislation in 2022 to regulate stablecoin issuers. The main goal is to manage customer concerns and reduce the chances of using these tokens for money laundering and any other illegal practices.
There are mixed viewpoints when it comes to crypto-related predictions for 2022. According to Sanyal in Analytics Insight, some market analysts believe that Bitcoin will reach an estimated price of about $100000 by the end of 2023.
On the other hand, other analysts believe it will reach that level in Q1 of 2022. Some others claim that by the end of 2022, Bitcoin won't rise above $70000.
Legislators are on their way to drafting regulations that make it easier to record tax information, which is currently done through the production of 1099 forms. In the near future, cryptocurrency exchange facilitators must issue 1099 Form-DA, a customized 1099 form specifically designed for digital assets.
Yes. The Federal Reserve exclusively keeps track of cryptocurrencies held by banks in the United States since its main mandate is to regulate banks and their operations with the help of a financial crimes enforcement network.
At the moment, the top financial regulator in the United States is evaluating the introduction of a CBDC (Central Bank Digital Currency), a cryptocurrency equivalent to the US dollar.
Some of the cryptocurrencies and related financial services that are predicted to rise this year are the following:
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