It took close to two decades for cryptocurrencies to move into mainstream use. The massive digital assets market has prompted regulations, but their ambiguous nature poses several challenges to the regulatory framework.
In this article, we take a closer look into the legal status of cryptocurrency across the world.
Legal Status of Cryptocurrency Across the World
Some countries have slapped an outright ban on cryptocurrencies. These include China, Egypt, Iraq, Qatar, Algeria, Bangladesh, Morocco, Nepal, and Tunisia. Another 42 countries have an implicit ban, meaning their banks cannot have crypto companies as clients. Governments subject crypto to money laundering and taxation regulations in countries where it is legal.
Here’s what some of the most prominent countries have done so far:
1. United States
Market regulators have received the power to proceed with the new U.S. framework announced in 2022. This report from Thomson Reuters shows that the regulators are the Securities and Exchange Commission (SEC) and the Federal Reserve Board. It also includes the Commodity Futures Trading Commission (CFTC).
The SEC already has a lawsuit against Ripple for selling its XRP token in unregistered security transactions, raising $1.3illion. It’s also targeting the Coinbase and Binance exchanges. The aim of U.S. regulators remains to curb the creation of new coins, regulate exchanges, and fight illegal activities.
The Internal Revenue Service (IRS) has tax guidance for cryptocurrencies, which they define as a “medium of exchange.” Investors must disclose their annual activity in cryptocurrencies on their tax returns.
The Biden administration wants to create a central bank digital currency (CBDC) or digital dollar to eliminate the need for other cryptocurrencies in the U.S.
2. China
The People’s Bank of China banned financial institutions from dealing in cryptocurrencies in 2013. It later expanded the ban to include crypto exchanges for their role in public financing without state approval. They grappled with a ban on crypto mining for a few years but finally cracked down on it in 2021.
China rolled out its pilot test program for its CBDC in some cities in April 2020 and expanded its pilot test program in August 2022.
3. Canada
Canada does not consider crypto as legal tender in Canada but has proactively made steps to create crypto regulation. It was the first country to approve a Bitcoin exchange-traded fund (ETF). There are now several on the Toronto Stock Exchange.
According to guidance from the county’s two regulators, the Canadian Securities Administrators and the Investment Industry Regulatory Organization of Canada, Crypto trading platforms in Canada must register with provincial regulators.
Crypto investment firms in Canada are classified as money service businesses, requiring registration with Canada’s Financial Transactions and Reports Analysis Centre. Cryptocurrencies get taxed like other commodities.
4. United Kingdom
The UK has no cryptocurrency-specific laws. The country does not consider cryptocurrency as legal tender but as property. Crypto exchanges register with the UK Financial Conduct Authority (FCA), and trading crypto derivatives is banned there.
The country has no specific reporting requirements for cryptocurrencies that target combating financial terrorism, anti-money laundering, or know-your-client standards. Crypto trading profits are considered a capital gain, payable as a tax, but this depends on the person performing the transaction and the type of crypto activity.
However, the UK has implemented reporting obligations to crypto exchanges and custodian wallet providers as of August 2022. They must inform the authorities if they have reasonable suspicion of a person subject to or has committed sanctions offenses to the Office of Financial Sanctions Implementation (OFSI).
Late in 2022, crypto assets became recognized financial instruments with a draft bill passed in the lower house of Parliament. In addition, the bill allows stablecoins to follow the current laws of all payment-focused tools.
5. Japan
Like the U.K., Japan has a progressive approach to cryptocurrency regulations. Under the Payment Services Act, the country recognizes crypto as legal property.
Crypto exchanges must list with the Financial Services Agency (FSA) while complying with AML/CFT regulations. Since it was established in 2020, all crypto exchanges must become members of the Japanese Virtual Currency Exchange Association (JVCEA). Investors making trading gains pay tax on these.
The country continues to work on regulations, including taxation of cryptos, remittance rules to prevent money laundering through cryptocurrency exchanges, and collecting customer information with a planned revision of the county’s Act on Prevention of Transfer of Criminal Proceeds.
6. Australia
In Australia, cryptocurrencies are classified as legal property, subjecting gains to a capital gains tax. Exchanges there must register with the Australian Transaction Reports and Analysis Centre and can operate if they meet the required obligations.
The Australian Securities and Investments Commission introduced its regulatory requirements in 2019 for initial coin offerings. It also banned exchanges from offering coins preserving anonymity, known as privacy coins. Australia has plans to launch a CBDC and to create a licensing framework for cryptos.
7. Singapore
In Singapore, cryptocurrency is classified as property, not legal tender. The Monetary Authority of Singapore licenses and regulates exchanges according to the Payment Services Act. The country doesn’t tax long-term crypto investment gains, but gains are treated as income when regular transactions occur.
The MAS issued guidelines in 2022 that warned digital token service providers about engaging the public through marketing and advertising to the general public.
8. South Korea
All cryptocurrency exchanges and virtual asset service providers in South Korea must register with a division of the Financial Services Commission. Since 2021, the country has banned all privacy coins. The government has passed a 20% tax on digital assets but delayed it to 2025. It also passed a Digital Asset Basic Act that it plans to implement soon.
9. India
India has not legalized cryptos, but it doesn’t penalize them either since it hasn’t yet voted on a bill prohibiting all private cryptocurrencies. Currently, the country enforces a 30% tax on all crypto investments plus a 1% tax deduction on crypto trades. The government plans to create a digital version of the rupee.
10. Brazil
Cryptocurrencies are not legal tender in Brazil, but its Chamber of Deputies approved regulations legalizing their use as a payment method. It’s yet to decide which department will monitor the enacted law. Crypto tokens, considered securities, remain within the jurisdiction of Brazil’s Securities and Exchange Commission.
11. European Union (E.U.)
Although individual members have the right to adopt their cryptocurrency exchange governance, crypto is legal throughout most countries in the E.U. Taxation varies between 0 to 50% among E.U. counties. The Fifth and Sixth Anti-Money Laundering Directives recently effectively ensured better reporting requirements.
The European Commission’s proposed Markets in Crypto-Assets Regulation framework was agreed on in 2022 after two years to increase consumer protections, establish firm crypto industry conduct, and introduce new licensing requirements.
Understanding the Risks and Security of Crypto Investing
Cryptocurrency investing is associated with a certain amount of risk as there is no guarantee that digital assets will retain their value or even exist. Investors must also consider security measures to protect their investments, such as using two-factor authentication and keeping funds off exchanges when possible. Additionally, investors should know the potential for fraud, scams, and other malicious activities.
Cryptocurrency Regulation & its Economic Implications
Cryptocurrency regulations can have far-reaching effects on the economy, including increased oversight of financial institutions and improved consumer protection. In addition, regulations could lead to more transparency within the sector, resulting in increased trust from consumers and businesses. Furthermore, it could lead to greater public access to cryptocurrency markets, allowing more people to participate in the economy and benefit from its growth.
Government Responses to Cryptocurrency Regulation Worldwide
Several governments around the world have taken steps toward regulating cryptocurrencies. In some countries, such as Japan and South Korea, exchanges must register with government entities before offering services. In the European Union (E.U.), individual members are given a certain degree of autonomy when establishing their regulations surrounding digital assets. Meanwhile, Australia recently introduced stricter laws for initial coin offerings, while India is still debating whether private cryptocurrencies should be banned.
The Advantages of Cryptocurrency Regulation
Cryptocurrency regulation has numerous benefits that could improve consumer protection and the sector’s trust. Regulations could help reduce the potential for fraud and malicious activities while providing more transparency about how funds are used. Additionally, regulations can clarify taxation and legal issues surrounding digital assets while guiding businesses that wish to operate in the space.
Looking To The Future – Positioning for Crypto Regulation Evolution
As the cryptocurrency sector evolves, so will its regulation landscape. Governments worldwide will likely continue to refine existing laws as they gain a better understanding of digital assets while introducing new laws as needed. Therefore, investors and businesses must remain abreast of regulatory changes and adjust their approaches accordingly. In this way, crypto players will be well-positioned to benefit from the opportunities presented by future regulations.
Final Take
After nearly 15 years since cryptocurrency first emerged, governments are still pondering ways to manage it, as seen from these 11 significant countries worldwide. The regulatory process is slow and often controversial, but regulatory frameworks are essential to protect consumers from fraudulent activity. Additionally, preventative measures are needed to prevent the illicit use of digital currencies.
FAQs
What is the impact of cryptocurrency regulations?
Cryptocurrency regulations can have far-reaching effects on the economy, including increased oversight of financial institutions and improved consumer protection. In addition, it could lead to more transparency within the sector, resulting in increased trust from consumers and businesses. Furthermore, it could lead to greater public access to cryptocurrency markets, allowing more people to participate in the economy and benefit from its growth.
What are the benefits of cryptocurrency regulation?
Cryptocurrency regulation has numerous benefits that could improve consumer protection and the sector’s trust. Regulations could help reduce the potential for fraud and malicious activities while providing more transparency about how funds are used. Additionally, regulations can clarify taxation and legal issues surrounding digital assets while guiding businesses that wish to operate in the space.
What is the future of cryptocurrency regulations?
As the cryptocurrency sector evolves, so will its regulation landscape. Governments worldwide will likely continue to refine existing laws as they gain a better understanding of digital assets while introducing new laws as needed. Investors and businesses must remain abreast of any regulatory changes and adjust their approaches to prepare them for the evolution of crypto regulations.
