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Crypto Regulations and Laws Around the World

an image with laws arranged in cubes to represent crypto regulations

While a few countries allow the use of crypto, some even to the point of allowing it as a legal tender, some others don’t care about these digital currencies and do not want their citizens using them and, to that end, have banned their use. At the same time, some countries do not have explicit laws regarding the use of crypto.

In this post, we will look at crypto bills and regulations around the world. Also, we will discuss a bit of the craziness in crypto and why people should care about rules.

Cryptocurrency Regulation: Why Now?

The big crypto crash of 2021 made many wonder why it seemed so easy for the value of crypto to fall or rise due to what appeared to be a few tweets by a billionaire. Of course, there were other factors, but that was one thing that was the highlight.

Then 2022 rolled by, and we experienced a collapse of a stablecoin, something that shouldn’t be normal, about 50 billion dollars of total capital destruction. People used the Terra USD coin as a safety benchmark against the fall of value in most crypto coins from January of the same year. Knowing stablecoins, no one expected that. Then, Bitcoin started falling again.

Sure, many other financial investments like the stock market can experience really low lows like this. However, there are clear regulations about cryptocurrencies in many countries, unlike the stock and other financial markets. At this point, it is clear that stronger regulatory oversight is needed.

Now, you may say one advantage of crypto is that it is “sorta” outside government control, but that poses so many other problems because any crazy person with enough skills or funds to hire highly skilled people can create a coin to scam “investors”. Hence, it is crucial that we get some sort of regulations while still leaving some independence for those who see lack of government control as a plus.

Before we look at the crypto regulations around the world, we will also review a bit of the benefits of crypto regulations.

Potential Benefits Of Crypto Regulations

More Stability

Although this is not guaranteed, more regulation may bring more stability to the volatile crypto market. Investors will be better protected because there will be less speculation among crypto assets and reduced risks.

However, many crypto investors also bank on the volatility of the crypto market to make huge returns.

Also, it may be hard to predict how crypto will react to such regulation in the long term and how stringent or lenient such laws will be.

In the short term, such regulations could inspire knee-jerk reactions and suppress trading volumes, like when China banned crypto in 2021, which led to a drop in the crypto market.

Protect Investors

There is a lack of regulations to protect assets. Although large centralized exchanges like Coinbase are compliant with federal and state financial regulations in the US, the regulations related to crypto aren’t as strict as that of public stock exchanges or alternative money trading systems.

Certain regulations could protect long-term investors by providing more explicit guidance on how companies innovate in the crypto space and making the market less vulnerable to external manipulation. That may lead to a safer market, which may, in turn, increase investor confidence leading to greater value over time.

Increase Safety

Crypto scams are a big thing. From stealing private keys through vulnerable wallets to fake coins and projects.

In 2021 only, scammers stole about $14 billion worth of crypto. Also, the number of altcoins rises every day, fraudulent coins being a good number of them. Crypto scam projects are all over the place.

Crypto regulations could prevent or limit fraudulent activity in the crypto space, potentially reducing the scams, rug pulls, and market manipulation.

Potential Downsides Of Crypto Legislation

Could Hinder Innovation

For many crypto enthusiasts, the decentralized nature of cryptocurrencies – not being backed by governments or any central authority – is one of the biggest draws to the market.

So, any new regulation that seems to give the government some control could threaten the decentralized nature of cryptos and, as such, discourage its use. With fewer people using crypto, innovation in the market will likely be discouraged.

At the same time, some crypto investors bank on the volatility. If the regulations affect that, they may bow out.

Limit This Digital Money Market

As seen in some countries already, governments are either banning crypto or limiting its use in the market. Such bans or limits can cause a fall in the use of cryptocurrencies as more investors pull out of the market, so they don’t go against government regulations.

Crypto Bills And Regulations Worldwide

Now that we know some of the potential benefits and downsides of crypto regulations, let’s look at how different countries approach this digital asset.

The United States Of America

In the US, the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has been providing guidance on Bitcoin since 2013. In general, cryptocurrencies are allowed, and the regulations aren’t strict.

However, President Biden signed an Executive Order on Ensuring Responsible Development of Digital Assets in March 2022 that dictates what US agencies and departments are in charge of crypto protection and regulations. More crypto bills may come in the future.

Note that any gains from converting cryptocurrencies into real currency (USD) are subject to taxation, so you must pay attention to your crypto taxes.

Exchanges are classed as Money Services Businesses. Those are subject to the Bank Secrecy Act and are required to register with the U.S. Treasury and file reports on transactions of $10,000 or more made with cryptocurrency.

At the state level, a few states have issued their own regulations on cryptocurrency businesses. For example, New York has a “BitLicense” required for businesses dealing with cryptocurrencies.

Also, crypto investment and financial companies registered in the US are to stick with financial regulations around investment and financial advice when working with cryptocurrencies.

Europe And The European Union

In the EU, cryptocurrencies are not considered legal tender but are treated as commodities. The main regulatory body for crypto is the European Securities and Markets Authority (ESMA) – note that each country has its own regulatory bodies/agencies as well.

In 2019, they published a warning about the risks associated with ICOs and CFDs involving cryptocurrencies. They also advised investors to be extra vigilant when it comes to these investments.

Regarding taxation, the rules vary by country. In Belarus, crypto is exempt from taxes until a review is done in 2023. In Germany, crypto gains are taxed, but it is exempt from taxes if you hold the crypto for more than one year. 

Although crypto has little to no regulations in most countries, some have taken a more hardline approach when it comes to crypto. France, for example, has banned all cryptocurrency anonymous wallets.

The EU also took a similar approach, stating that crypto transactions should no longer be anonymous in order to curb financial crimes; crypto leaders, including Coinbase CEO Brian Armstrong, denounced the rules stating it is “anti-innovation, anti-privacy, and anti-law enforcement.”

The United Kingdom

Bitcoin is legal in the UK. Cryptocurrencies are not considered legal tender but are classed as assets. The Financial Conduct Authority (FCA) has issued several warnings about the risks of investing in cryptocurrencies.

Also, the FCA ordered companies that offer crypto services and products to register with the British regulator. However, some companies have stated that they are stingy about giving the license. In response, the FCA stated that it had seen too many financial crime red flags on businesses seeking the license.

Some businesses in the UK have started to accept Bitcoin as payment, but there are no laws regulating its use.

India

In India, the use of cryptocurrency is banned. It was punishable by jail term and huge fines, but that was overturned. Can it become legal in the future? Yes. However, we don’t know when or if that will happen. 

The funny thing is even though it is illegal, profits and trade volumes are taxed. The government has placed a 30% tax on income from crypto transactions and a 1% tax at source on some transactions.

In addition, the government has decided to enter the digital currencies market with a digital rupee as its central bank digital currency.

Australia

In Australia, cryptocurrencies are considered financial assets with value and are subject to capital gains tax when specific events occur. Such events could be exchange, sale, gifting, use for purchase of goods or services, and conversion to fiat currency. Every crypto user is required to keep records of their use of cryptocurrencies for taxation purposes.

South Korea

In South Korea, cryptocurrencies are not considered legal tender though their use is not illegal. The rules on taxation are a bit of a gray area because they are not seen as cash or financial assets. However, the Minister of Strategy and Finance stated that it is considering levying a tax on profits from crypto transactions.

South Korea does have stringent exchange laws monitored by the Financial Supervisory Service of South Korea (FSS). One of them is that anonymous accounts in trading are restricted so that only real-name bank accounts can do such transactions. Both the bank and exchange/dealer must verify the trader’s identity.

Exchanges, wallet providers, and ICO projects registered in South Korea must obtain a license to operate from the Financial Services Commission’s Financial Intelligence Unit.

Singapore

There are no taxes for crypto gains in Singapore, and they are not banned. However, businesses that do crypto trading or transactions in crypto are liable to income tax if they accept crypto as payment.

Canada

Cryptocurrency is legal in Canada, and the country has been proactive in its regulation. The Canadian Securities Administrators (CSA), which regulates securities, published investor alerts about ICOs and cryptocurrency investment schemes.

The CSA has also stated that some crypto assets may be considered securities and therefore subject to securities laws. Crypto exchanges must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). They are also to report suspicious transactions and abide by the compliance regulations.

In terms of taxation, crypto gains are treated as capital gains or business income, depending on whether the transactions were for personal or business/commercial purposes. For capital gains, 50% of the gains are what is taxable. If you make $100 on top of your crypto, only $50 of that profit is taxable.

Central African Republic

In April 2022, the Central African Republic adopted Bitcoin as a legal tender. It is now a legal currency alongside the regional Central African CFA franc. The lawmakers passed a bill to legalize bitcoin and other cryptocurrencies as well.

El Salvador

In June 2021, El Salvador became the first country to make bitcoin a legal tender, making it possible to display the price of goods and services in the country in Bitcoin, pay taxes in bitcoin, and buy and sell with bitcoin without being subject to capital gains tax.

What Countries Have Allowed Crypto?

We have already looked at some countries where cryptocurrencies are legal, whether as an asset or legal tender. Here are additional countries:

  • Denmark
  • Germany
  • France
  • Japan
  • Iceland
  • Mexico
  • Spain
  • Australia

What Countries Have Made Cryptocurrencies Illegal?

There are a handful of countries that have outright banned cryptocurrencies:

  • Bangladesh
  • Bolivia
  • Ecuador
  • Algeria
  • China
  • Egypt
  • Iraq
  • Morocco
  • Qatar
  • Tunisia

What Countries Have Placed Restrictions On Crypto?

A few more countries have implicit bans. These include Bahrain, Burundi, and Cameroon. Also, some countries, including Nigeria, have banned commercial banks and financial institutions from allowing customers to withdraw from crypto exchanges and organizations. Though cryptocurrencies aren’t criminalized, the police and other institutions may trouble users who are open with their crypto use.

Additionally, Thailand has placed some restrictions on cryptocurrencies and ICOs.

Financial Laws That May Affect The Distribution Of Crypto

In this section, we will specifically look at financial laws that may affect crypto, regardless of if it is a crypto-specific law.

The Situation In The US

The US has clear regulations when it comes to securities. The Howey Test is a set of criteria used to determine whether certain transactions qualify as “investment contracts”. If something meets these criteria, it is considered a security and falls under the regulatory oversight of the US Securities and Exchange Commission (SEC). If a digital token is determined to be securities by the SEC, the SEC can regulate its distribution and use.

The SEC has also published investor alerts and bulletins that provide guidance on investing in ICOs and digital tokens.

In addition to securities laws, other US federal and state laws may apply to cryptocurrencies and ICOs. These include laws against money laundering, fraud, and tax evasion.

What’s The Financial-Law-To-Crypto Situation Like In Europe?

The European Union (EU) does not have a single set of rules on how cryptocurrencies should be regulated. Instead, each member state of the EU has its own set of rules.

In general, the EU takes a more permissive approach to cryptocurrencies than the US. For example, most EU member states do not consider cryptocurrency investments to be securities.

What’s The Situation In Asia?

There are no continent-wide financial laws in Asia; each country has its own laws. Some countries have crypto-specific regulations, while others do not. We have looked at individual countries already, but we will look at three examples here.

Japanese businesses that accept cryptocurrencies as payment must pay taxes on transactions made with crypto.

In China, the government has taken a more heavy-handed approach to cryptocurrencies. The Chinese government has banned ICOs and exchanges. Chinese citizens are still allowed to hold and trade cryptocurrencies, but they do so at their own risk.

What this means for the future of cryptocurrency in Asia is uncertain. One thing is for sure: the use of cryptocurrency will continue to grow in the region despite any challenges it may face.

What’s The Situation In Africa?

In some countries, there are financial laws that may affect the distribution of crypto in Africa. For example, in Nigeria, the Central Bank of Nigeria (CBN) has banned the use of cryptocurrency by financial institutions operating in the country. This means that people may not be able to buy or sell cryptocurrencies through these channels easily.

In South Africa, the Financial Intelligence Centre Act (FICA) requires businesses to identify and verify the identity of their clients when they engage in certain transactions. This could make it more difficult for people to buy or sell cryptocurrencies anonymously.

In Zimbabwe, the Reserve Bank of Zimbabwe (RBZ) has prohibited banks and other financial institutions from dealing in cryptocurrencies. This means that people will likely have to find other ways to buy or sell cryptocurrencies in the country.

What’s The Situation In Latin America?

Cryptocurrencies are also widely used in Latin America. Although there are no strict laws that affect crypto in most countries, some warnings and guidance have been issued by different governments.

In Brazil, the Securities and Exchange Commission of Brazil (CVM) has issued warnings to investors about the risks associated with investing in ICOs.

Argentina’s Central Bank did the same. Note that cryptocurrencies were banned previously in the country but were unbanned in 2022.

In Mexico, the Central Bank has warned investors about the risks of investing in cryptocurrencies. The Central Bank has also issued guidance on how to invest in cryptocurrencies.

What’s Next In Cryptocurrency Regulation?

So far, we have looked at crypto regulation in the US, EU, Asia, Africa, and Latin America. As you can see, there is a lot of variation in how different countries approach crypto regulation. In some cases, like in China, governments have taken a more heavy-handed approach, while in others, like in Japan, they have taken a more permissive approach.

For the USA, clear rules are still developing, but we know based on conversations on Capitol Hill that regulations will come at some point. Plus, the Federal Reserve is considering issuing a U.S. digital currency.

It’s impossible to say what the future of cryptocurrency regulation will be. However, it is clear that the global regulatory landscape is constantly evolving.

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