What is Crypto Legislation?
Crypto legislation refers to regulations designed to govern cryptocurrencies in legal jurisdictions around the world.
The Long Definition
Crypto legislation refers to cryptocurrency laws and the attitudes of legislative bodies toward digital currencies. Different legal jurisdictions have different regulations. These affect cryptocurrencies and crypto-related activities.
Note that the digital assets space is relatively young. So regulators have yet to fully adapt to this new class of assets. Most crypto regulations are a work in progress. Expect regulators to change or update them over the next few years.
History of Crypto Legislation
Bitcoin was launched in 2009 as an alternative mode of payment. The idea was that a trustless, decentralized medium of exchange would replace the existing system. At the very least, it would act as competition that would force governments to act in good faith. Despite this, there was no effort by governments to regulate crypto for several years.
The US Financial Crimes Enforcement Network (FinCEN) first spoke on the legal position of digital currencies in 2013. It said that crypto ‘does not have legal tender status in any jurisdiction.’
Things started to change as crypto exchanges grew in popularity. By allowing people to trade and speculate on crypto, they became a more important piece of the financial landscape. Many people also trusted these centralized exchanges to hold their crypto.
However, early exchanges were hacked far too often. And as a result, people lost a lot of money. This would result in some exchange founders being prosecuted in the US by FinCEN. It also prompted Japan to introduce regulation in 2016. This made it the first country to do so.
The creation and rise of Ethereum would really open up the crypto space. It allowed the creation of many blockchain-based financial products, which in turn, increased cryptocurrency usage. This pushed regulators to start acting.
Since then, many countries have adopted a stance toward cryptocurrencies. Some, like China, Iran, and Taiwan, have outrightly banned them. Most, however, are in the process of embracing crypto to various degrees through legislation.
Crypto Regulations Around the World
Cryptocurrencies are not considered legal tender. The Internal Revenue Service (IRS) defines crypto as a “digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value.” It treats it as property. Therefore, the same general tax principles that apply to property transactions also apply to crypto transactions.
On the other hand, crypto exchanges are legal, although the regulation varies by state. FinCEN considers them to be money transmitters. Therefore, crypto exchanges operating within the US must register with FinCEN. They’re also subject to anti-money laundering and combating the financing of terrorism regulation (AML/CFT) and the Bank Secrecy Act (BSA).
Cryptocurrencies in Canada are not considered legal tender. They are, however, regulated by securities laws. Note that securities laws in Canada are enacted on a provincial and territorial basis. Each jurisdiction has its own mandated securities regulators. These regulators form a nationwide body known as the Canadian Securities Administrators (CSA).
Over the past few years, the CSA has issued several notices on the potential applicability of security laws to cryptocurrencies
Entities dealing in cryptocurrencies are considered money services businesses. Therefore, they fall under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA).
Crypto exchanges must also register with the Financial Transactions and Reports Analysis Center of Canada (FinTRAC). Furthermore, they are subject to the Virtual Currency Travel Rule, which requires them to keep a record of all cross-border transactions.
The CSA also requires crypto issues to disclose information on how they protect their digital assets against loss and theft.
Cryptocurrencies are legal in Japan. The Payment Services Act (PSA) recognizes them as legal property. Cryptocurrency service providers also fall under the scope of the PSA. And, according to the National Tax Agency, gains on cryptocurrencies should be categorized as miscellaneous income.
Exchanges are also legal in Japan. They’re required to register with the Financial Services Agency (FSA) before they can begin operations. The country has also established two associations, the Japanese Virtual Currency Exchange Association (JVCEA) and the Japan STO Association. These function to promote regulation and advise exchanges waiting to be licensed.
Cryptocurrencies are not legal tender in Singapore. Bitcoin is, however, treated as “goods.” Therefore, it is subject to the country’s VAT – known as the Goods and Services Tax.
The Monetary Authority of Singapore (MAS) does not regulate cryptocurrencies. However, it has issued guidelines that prohibit crypto service providers from advertising their services to the public.
Crypto exchanges are legal as long as they’re registered with MAS.
China has some of the strictest regulations in the world. Cryptocurrencies are not considered legal tender and are outlawed. However, they are given the status of property when determining inheritances.
The People’s Bank of China (PBoC) prohibits financial institutions from handling Bitcoin transactions. ICOs, crypto exchanges (foreign and domestic), and crypto mining are all prohibited under Chinese law.
United Kingdom (UK)
Cryptocurrencies are not recognized as legal tender in the UK. The country has yet to pass specific cryptocurrency laws. However, gains and losses on digital assets are subject to capital gains tax.
As for crypto exchanges, these are legal. They must be registered with the Financial Conduct Authority (FCA) and have AML/CFT reporting obligations.
Switzerland is another country with progressive crypto regulations. It has made cryptocurrencies legal by adapting its existing financial legislation to include cryptocurrencies.
The Swiss Federal Tax Administration (SFTA) classifies cryptocurrencies as assets. Therefore, they are subject to wealth tax. Holders are also required to declare them on annual tax returns.
Crypto exchanges are legal. They are regulated by the STFA and are required to obtain a license from the Swiss Financial Markets Supervisory Authority (FINMA). Switzerland also passed the Distributed Ledger Technology Act which introduces a license category for crypto trading venues
The European Union
Cryptocurrencies are considered legal across the EU. The European Union has also approved the Markets in Crypto-Assets (MiCA) bill. This bill contains a comprehensive set of rules for the crypto space, which will come into effect in 2024.
Crypto laws vary by country in Latin America. The most popular of these is El Salvador. The government adopted Bitcoin as a legal tender in 2021, becoming the first country to do so.
Argentina, Brazil, Chile, and Venezuela have relatively friendly regulations. Crypto is even accepted as payment by some merchants and retailers. It is also subject to capital gains tax.
The countries with the harshest regulations are Bolivia and Ecuador. These have bans on cryptocurrencies and crypto exchanges.
Many countries in Africa have a neutral stance toward crypto. Their governments have made no move to ban or regulate crypto.
Others, like South Africa and the Central Africa Republic (CAR), are quite progressive.
South Africa is leading the charge to regulate crypto assets. The country’s financial watchdog, the Financial Sector Conduct Authority (FCSA), already classifies crypto as financial products as it gears up to regulate the market. Crypto financial service providers will also be required to apply for licenses from mid to late 2023.
The Central Africa Republic (CAR) is only the second country in the world to adopt Bitcoin as a legal tender.
Some African countries have banned crypto. Algeria, for instance, prohibits holding and transacting crypto. Egypt’s Islamic law also classifies crypto transactions as ‘haram.’