Global Cryptocurrency Regulations – From The Wild West to Outright Bans

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Many crypto enthusiasts feel lost in cryptocurrency regulations, and some simply brush them aside. But while ignorance may be bliss, it doesn’t free you from responsibility.

Regulations might not be the most glamorous aspect of the crypto world, but they’re there for a reason – to protect investors and prevent broader financial disasters.

However, each country’s stance on crypto differs. Did you know that some countries, like China and Qatar, have completely banned crypto? In contrast, El Salvador considers Bitcoin ($BTC) a legal currency alongside the US dollar.

This article dives into cryptocurrency regulations around the world, giving you the knowledge necessary to invest safely and confidently.

What is Cryptocurrency?

The first crypto, Bitcoin, emerged in 2009. Its creator, known by the pseudonym Satoshi Nakamoto, wanted to create a currency free from government or bank control.

This concept appeals to those who prefer privacy in their transactions and distrust traditional financial institutions.

Fast and borderless transactions are another reason for using crypto.

There’s no need for a bank account – anyone can access their crypto wallet with an internet connection.

There are thousands of cryptocurrencies, each with its own features and purposes. Some act as payment methods, others as long-term stores of value, similar to gold.

Utility tokens unlock specific features within a project, while meme coins are created for fun and quick gains (or losses) on speculation.

What Does Regulation for Cryptocurrency Mean?

Cryptocurrencies operate outside the traditional financial system, allowing anyone with an internet connection to make payments globally.

Governments try to catch up with this new asset class and gain some control by establishing legal frameworks. These regulations are all over the place, differing wildly between countries and constantly evolving.

But why regulate something that was created to bypass regulations? Well, it’s not that simple. Here are some of the reasons.

Consequently, crypto legislation might encompass the following:

Some governments employ extensive regulations for crypto businesses. For example, Japan enforces strict KYC, taxation, consumer protection, and licensing rules. Others have almost none.

Likewise, some governments encourage crypto trading and blockchain development, while others, like China, ban it entirely. That’s why you should do your due diligence before engaging in any crypto-related activity.

Naturally, such disparity can challenge global trade. This is where the International Monetary Fund (IMF), an international organization with 190 member countries, comes into play.

There’s no one-size-fits-all ‘IMF crypto law.’ Instead, the IMF gives individual countries policy recommendations and encourages them to cooperate. We can only hope that its members will eventually reach a consensus.

How is Crypto Regulated in the United States?

Now that you know the reasons behind digital asset laws, let’s unpack specific US crypto regulations.

The US regulatory landscape for cryptocurrency is a work in progress. The emergence of Bitcoin caught authorities off guard. There were absolutely no laws governing virtual currencies, which created grounds for speculation and manipulation.

As crypto gained popularity, the US government appointed three agencies to oversee the market and protect investors.

Apart from these three big players, the US government may involve the Financial Crimes Enforcement Network (FinCEN) in investigating money laundering cases.

Naturally, navigating the various regulations from each of these agencies can be overwhelming. Here are the key points you should know about crypto taxation in the US.

While it may seem like the US government is only concerned with getting its cut, it also introduces investor protections:

Also worth mentioning is that some states may have specific laws on crypto. For example, New York has a specific licensing regime called the ‘BitLicense’ for businesses dealing with virtual currencies.

This license requires extensive background checks, compliance measures, and cybersecurity protocols. Likewise, California requires a Money Transmitter License for businesses that process over $10k in crypto within a year.

These are just a few examples, so always DYOR. You can find state-specific information on the North American Securities Administrators Association (NASAA) website.

Rules and Regulations for Cryptocurrency Around the World

Crypto transcends borders, but regulations don’t. Read on to discover how the rules of the game differ across the world.

China

China has a reputation for its strict laws, and crypto is no exception. However, contrary to common belief, there’s no outright ban on virtual currencies. Owning crypto isn’t illegal, but trading it on foreign exchanges or using it for payments? While no specific law prohibits these activities, the government makes them extremely difficult.

In 2013, the People’s Bank of China issued a Notice on Preventing Bitcoin Risks, clamping down heavily on crypto businesses, including exchanges, ICOs, new tokens, and other projects.

Furthermore, China sees crypto as a virtual commodity rather than a real currency.

So, while you won’t be prosecuted for owning crypto, there’s virtually no use for it in the region. China prioritizes control over its financial system and is concerned about digital currencies destabilizing it and enabling illicit activities.

Additionally, China is currently revising its AML laws to include virtual assets. This could potentially result in stricter regulations and penalties for using crypto.

Since China doesn’t recognize crypto, there are also no specific tax regulations. Instead of worrying about Bitcoin, China is busy developing its own central bank digital currency (CBDC), which will give the government greater control over citizens’ financial activities.

Think of it as the polar opposite of crypto – one’s all about decentralization, and the other’s about keeping a tight grip. It’s a safe bet that most would prefer the freedom of crypto, which is probably why the Chinese government is working overtime to tighten the reins.

Canada

Unlike many countries that have vague or non-existent crypto legislation, Canada has a proactive approach. It was the first country to approve a Bitcoin exchange-traded fund (ETF) on the Toronto Stock Exchange.

This move shows Canada’s openness to innovation. Overall, the country opts for regulations over restrictions to mitigate risks without hampering progress.

While Canada allows the holding and trading of crypto, virtual money is not legal tender like the Canadian dollar.

Furthermore, if you mine crypto, your profit is considered business income and is taxed accordingly. However, there is no tax on buying or holding crypto.

Crypto firms are classified as Money Service Businesses (MSBs), which brings them under the purview of the FINTRAC, Canada’s financial intelligence unit. FINTRAC employs AML laws like KYC and Suspicious Activity Reporting (SAR) procedures.

The Canadian Securities Administrators (CSA) is also actively involved in regulating crypto trading platforms. They determine if a crypto asset qualifies as a security and falls under respective laws.

United Kingdom

Similarly to Canada, the UK takes a proactive and balanced outlook on virtual currency regulations. Crypto businesses must play by the book and comply with KYC and AML procedures.

Here’s where things get interesting. Recently, the Financial Services and Markets Act 2022 (FSMA 2022) brought certain crypto assets under the FCA’s regulatory umbrella.

This means crypto trading now faces similar rules as traditional investments. Crypto businesses need to get a proper FCA license and implement consumer protection measures to ensure everyone plays fairly.

The FSMA might also pave the way for further regulations. By mid-2024, the UK government plans to introduce secondary legislation that outlines specific rules for crypto activities under FCA’s purview.

Despite the name, stablecoins aren’t risk-free. The mechanism that maintains their value is complex and vulnerable to disruptions.

If a stablecoin loses its peg or experiences a significant price drop, it could cause wider financial instability.

That’s why the Financial Services and Markets Bill (FSMB) has been fast-tracked through Parliament’s Upper House. It aims to keep stablecoins in check.

Meanwhile, UK citizens must pay capital gains tax on their investment profits. Short-term and long-term capital gains fall under the same umbrella and are taxed at 10%-20%, depending on your early earnings.

Japan

Japan is known for its progressive stance on technological innovation, whether humanoid robots, renewable energy, or blockchain. That’s why Japan recognized crypto as legal property and developed appropriate laws relatively early, in 2017.

The FSA regulates crypto exchanges in Japan, requiring them to register and comply with AML rules. Money laundering appears to be the government’s primary concern, with new laws trying to close any loopholes that malicious actors could exploit.

For instance, Japan introduced the ‘Travel Rule,’ which mandates exchanges share customer information when transferring crypto to other platforms. This law was first issued in 1995 with fiat currency in mind but was amended for crypto in 2023.

Banks dealing with fiat money had to include information like transfer references and the sender’s legal name.

Crypto transactions include no data beyond the transfer amount and wallet address, so regulations are still underwork.

Unlike many countries that treat crypto as capital gains for tax purposes, Japan classifies it as miscellaneous income. This means you must pay the same tax as you would from freelance work or side hustle.

Japan has a progressive tax system, so the rate you pay depends on your overall income. Generally, it ranges from 15% to 55%, significantly higher than the capital gains tax rate of 20%.

On a good note, you don’t have to report crypto gains if they don’t exceed $1,5k a year.

Australia

Australia didn’t reinvent the wheel with its crypto taxation regulations. The government treats crypto as capital gains, so you must pay 12%–35% tax depending on your overall yearly income.

However, if you earn under $13,5K a year, you can enjoy your crypto profits tax-free.

Furthermore, holding your crypto for over 12 months before selling it gives you a 50% capital gains discount. It seems the Australian government is all in for HODLing.

Crypto exchanges operating in Australia must comply with regulations set by the Australian Transaction Reports and Analysis Centre (AUSTRAC). This includes KYC and AML procedures, which are the standard globally.

On the other hand, Australia threw a curveball with its ban on privacy coins. Tokens like Monero and Zcash make transactions difficult to trace, so the government is concerned about their use in money laundering. Most countries are still wrestling with how to handle privacy coins, and few have taken an equally bold step.

Singapore

Like the UK, Singapore treats cryptocurrency as property, not legal tender, so it could be subject to capital gains tax. However, Singapore doesn’t tax income from the sale of assets, contributing to its image of a ‘safe haven’ for crypto investors.

Here’s the catch. Despite the lack of capital gains tax, you may have to pay income tax if authorities deem them part of your core business activities.

They consider the frequency of trading, your investment amount, and the use of special infrastructure. Still, the tax rate ranges from 0% to 22%, which isn’t that bad compared to Japan.

Singapore also has AML and KYC laws for crypto businesses, like most countries we discussed above. Exchanges, DeFi platforms, and other firms must report to MAS under the Payment Services Act (PSA).

In 2022, MAS advised crypto businesses to limit mass advertising. Such cautiousness indicates Singapore is rolling out the red carpet for seasoned crypto players, not those just dipping their toes in the water.

South Korea

Like most countries, South Korea requires all crypto businesses to register with the KFIU and comply with AML and KYC laws.

However, South Korean exchanges also have self-regulatory organizations (SROs) established by the crypto industry itself. These SROs operate under the KFIU’s provision but can set additional rules for token listings, trading practices, and investor protection.

South Korea takes a zero-tolerance approach to crypto shenanigans. For example, they’ve banned Initial Coin Offerings (ICOs) altogether due to the high risk of scams. Privacy coins also got the boot to combat money laundering and financial terrorism.

All in all, South Korea has some of the strictest crypto regulations worldwide, but it’s far from China’s or Egypt’s complete crackdown. The government is open to innovation in the space but adopts new trends with caution.

India

India’s crypto regulations are somewhat vague. Unlike some countries that have either embraced or outlawed digital currencies, India remains firmly on the fence.

Recently, the government proposed a bill banning unregulated virtual currencies. This could spell trouble for crypto investors, especially if India launches its own CDBC, a potential competitor to BTC and ETH.

Despite the unclear legal status, the Indian government isn’t shy about taking its cut.

They currently levy a hefty 30% tax on crypto profits, significantly higher than many other nations. To add insult to injury, they also impose a 1% TDS on crypto transactions over ₹50,000 (roughly $600).

With no clear-cut crypto laws, AML and KYC procedures also play a waiting game. It seems India’s current strategy is to keep an eye on the global crypto scene before making a decisive move.

Brazil

Contrary to India, Brazil is the frontrunner in crypto adoption. Cryptocurrencies are a legal payment method countrywide, so Brazilian businesses can accept BTC, ETH, and other approved tokens alongside cash and credit cards.

This is unsurprising given Brazil’s history of an inflationary rollercoaster that made its citizens wary of fiat currencies. Some Brazilians might see crypto as a more reliable way to store their hard-earned cash.

However, Brazil isn’t going all-in without any guardrails. The BCB requires all crypto service providers to register and comply with standard AML and KYC regulations.

Furthermore, depending on your total annual income, the tax on crypto trading profits can get hefty. There’s no capital gains tax, but you must pay a 5%–45% miscellaneous income tax rate.

El Salvador

El Salvador made headlines when it became the first (and so far, only) country to make Bitcoin legal tender. Unlike Brazil, where businesses can choose to accept BTC or not, El Salvador flipped the switch to mandatory.

Following this bold move, the government distributed free crypto wallets to citizens through their state-sponsored app, Chivo (which, for all you Spanish enthusiasts, means ‘cool’). This decision aimed to get everyone on board the Bitcoin train.

What’s more, El Salvador offers tax benefits for foreigners investing in crypto. With exemptions from capital gains taxes, the country hopes to attract foreign cash and fuel economic growth.

However, there are still a few kinks to iron out. Regulations for crypto businesses are still underway. There are no specific AML or KYC requirements or consumer protections, which raises concerns about illegal crypto activities.

Another hurdle El Salvador faces is BTC’s inherent volatility, making it a gamble for everyday transactions. Finally, let’s not forget the digital divide.

Not everyone in El Salvador has access to smartphones or the internet, which are crucial for using the Chivo wallet. This creates a situation where some citizens are left out of the Bitcoin bonanza.

Switzerland

Similar to El Salvador and Brazil, Switzerland is pioneering crypto adoption. In 2020, it introduced laws concerning the notion of distributed ledger technology (DLT) securities. In essence, Switzerland created a legal framework that welcomes innovation within the crypto industry.

But let’s talk specifics. How is crypto taxed in Switzerland? Well, it depends on your tax status and how you use your crypto. For individual investors, things can be quite budget-friendly.

Switzerland treats crypto as movable assets and applies wealth tax at the cantonal level (think state level). These rates are capped at a chill 0.99% of your total assets.

The SFTA maintains a list with tax values for common cryptos to simplify the process.

However, the capital gains tax exception only applies to private investors, not professional traders or businesses.

Furthermore, Switzerland operates a tiered licensing system for crypto businesses. For lower-risk activities like custody (holding crypto for clients) or basic trading platforms, a simpler ‘Finma Innovation License’ may suffice.

However, if you’re running a full-fledged crypto exchange, you’ll need a more comprehensive license from FINMA.

Of course, AML and KYC regulations are very much in play for crypto businesses in Switzerland. The Swiss government also recognizes the importance of educating consumers – for example, FINMA has a dedicated blog.

European Union

The EU leaves much of the responsibility for crypto rules to individual member countries, so it feels like a regulatory patchwork.

Taxation is a prime example of this diversity. Portugal welcomes crypto gains with open arms, treating them like tax-free income (under certain conditions).

Head north to Denmark, however, and you might face a whopping tax rate that could make your eyes water (up to 52.07%).

It’s not all doom and gloom for high-rolling crypto enthusiasts, though. Countries like Cyprus, Estonia, Malta, and Slovenia have a 0% capital gains tax.

This stands in stark contrast to Finland, Germany, and Sweden, where tax rates can climb past 30%. Most EU countries fall somewhere in the middle, levying a tax rate of up to 20% on crypto profits.

Despite the tax chaos, the EU is making strides towards a more unified approach to crypto regulation.

The Fifth and Sixth Anti-Money Laundering Directives (5AMLD and 6AMLD) are now in place across the bloc. They require cryptocurrency service providers to adhere to KYC and combating the financing of terrorism (CFT) regulations.

In April 2023, the European Parliament took another step towards harmonization. They now require crypto service providers, such as exchanges and custodians, to obtain an operational license.

If you live in the EU, it’s important to do your due diligence on your local tax, reporting, and registration implications before diving headfirst into trading.

What are the Downsides to Regulating Digital Assets

We’ve briefly touched on the benefits of crypto regulations. However, excessive government control also has downsides. Let’s discuss some of them.

Final Thoughts

The spectrum of global crypto regulations is broad. While some governments fully legalize crypto and incentivize investors with low tax rates, like El Salvador, others remain wary or ban crypto altogether.

Remember, the regulations are a work in flux. Before you plunge into trading, it’s crucial to Do Your Own Research (DYOR) about your local laws.

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