How Do Cryptocurrency Regulations Differ Across the Globe?
The recent Infrastructure Bill in the US got American crypto investors and service providers worried, and it showed us that a slight change in government regulation could heavily affect the crypto industry. In light of this, let’s take a look at different cryptocurrency regulations across various countries worldwide. Five of these countries could be considered as leading the way for cryptocurrency regulation, but we've also included one that is more "on-the-fence", and two... well, let's just say they're not so fond of digital assets.
Even though New Zealand doesn’t consider cryptocurrencies legal tender, they’re still seen as properties. Owning cryptocurrencies can be compared to owning shares in a company. As a result, investing in crypto is perfectly legal, but if scams happen, no one will be given any legal compensation due to a lack of regulations (at the time of writing).
That being said, if you want to open a company offering cryptocurrencies as financial services (such as exchanges, crypto wallets, brokers or ICOs), you would still be subjected to New Zealand laws. These laws prevent people from making misleading claims or attempting money laundering.
When you run a business that accepts cryptocurrency as payment, this income will be taxed the same as any other income source. The New Zealand government requires citizens to record their crypto income and calculate the value of said income into NZ dollars on their tax returns. Failure to do so can lead to heavy tax penalties.
The US prides itself on being the land of the free, so it makes sense that its stance towards cryptocurrencies is relatively positive. While the Financial Crime Enforcement Network (FinCEN) doesn’t consider crypto legal tender, it considers exchanges to be money brokers, so they fall within their jurisdiction.
In contrast, the Internal Revenue Service (IRS) has already issued tax guidance that looks at cryptocurrencies as property. In June 2015, New York became the first state to use state agencies to regulate virtual currency. Fast forward a few years later, as many as 32 states had introduced legislation that accepts or promotes Bitcoin and other blockchain creations. A few states even passed them into laws.
In 2017, Bitcoin received the same financial safeguards as traditional assets. The Federal Trade Commission (FTC) approved LedgerX, a crypto trading platform, to be the first federally regulated crypto exchange in the US.
You can consider China as the opposite of the US in this case. The country does not accept cryptocurrencies as legal tender, so the banking system excludes any crypto-related services. Furthermore, various regulatory measures exist to crack down on practices involving crypto to prevent financial risk.
These measures range from banning initial coin offerings to restricting crypto trading platforms. China also tries to discourage Bitcoin mining even though the practice technically doesn’t pose ‘financial risks’; perhaps they’re also concerned about environmental risks.
It may be surprising to some, but the government did define Bitcoin as a virtual commodity in 2013, and Chinese citizens were once allowed to trade crypto then freely. Hopefully, China’s attitude towards cryptocurrency will change in the future as its central bank is considering issuing its own digital Yuan.
While most of the world is in hesitation, Malta establishes itself as a pioneer in crypto regulation. Malta defined cryptocurrencies as “a medium of exchange, a unit of account, or a store of value”. So while there is no tax legislation for crypto, all the crypto exchanges are legal and under the Virtual Financial Asset Act (VFA) regulation.
In 2018, The Maltese government introduced three bills that set the standard framework for regulating crypto exchanges, brokers, ICOs, wallet providers and asset managers. These three bills are the Malta Digital Innovation Authority Act, the Innovative Technological Arrangement and Services Act, and the VFA Act.
In 2020, Vladimir Putin signed a Federal Law on Digital Financial Assets (DFAs) and Digital Currencies that enables monetary claims, the ability to exercise rights to securities and the right to take part in non-public stock companies. The law also recognises utility tokens to be digital financial assets.
Even though the law defines digital currencies as means of payment, Russian citizens are prohibited from receiving them as payments. Moreover, it is illegal for crypto exchanges to operate on Russian soil, and judicial protection of claims regarding such operations is only possible if the digital currency transactions are declared in compliance with the law.
Japan possesses a very progressive regulatory climate for cryptocurrencies. Said currencies are treated as legal property, and crypto exchanges are free to operate so long as they’ve registered with the Financial Services Agency. All crypto businesses with a competent Financial Bureau can operate as exchanges, which also goes for foreign companies. However, the standard for ‘competency’ is very high since Japan has suffered many high-profile hacks targeting its exchanges, the most famous of which is the Coincheck heist of $530 million.
Thanks to Japan’s progressive stance, the country is among the world’s biggest market for Bitcoin. In 2017, the National Tax Agency determined that crypto gains are classified as ‘miscellaneous income’, so investors are taxed accordingly. New amendments replaced the term “virtual currency” with “crypto-asset”, which tightened the management of crypto trading.
In June of 2021, the FCA took actions that heavily affected the cryptocurrency picture in the UK, but primarily for organisations rather than individuals. They now regulate crypto on an organisational level and require crypto exchanges and such businesses to register. Still, their anti-money laundering requirements are so hard to satisfy that only six cryptocurrency firms have successfully registered.
Perhaps the best example is that Binance, the leading crypto exchange worldwide, is now banned from operating in the UK. Binance tried to register but had to withdraw their application due to anti-money laundering requirements. Recent regulations have also prohibited the sale of cryptocurrency derivatives, referring to investing in crypto without actually purchasing them.
As for the average citizen, cryptocurrencies are separated into four categories, including Bitcoin falling into the ‘exchange tokens’. They are considered personal investments, corresponding to the capital gains tax. In comparison, crypto trading as a business activity will have the income tax regulations applied on. Coinbase agreed in 2020 to provide information on users with more than €5,000 in crypto to the UK government for tax purposes.
Cryptocurrencies are not considered legal tender in India, but exchanges are permitted, although only due to the lack of a comprehensive regulatory framework. Still, it is not easy to develop certain crypto services and technologies because the licensing process is incredibly lengthy.
India has a record of hostility towards crypto in the past, including forcing domestic exchanges to shut down and banning banks from “dealing with or settling virtual currencies”. While exchanges were later allowed to reestablish, the state of cryptocurrency regulation in India is questionable. In 2019, the Indian government recommended a blanket ban and imprisonment of people who “mine, generate, hold, sell, deal in, issue, transfer, dispose of, or use cryptocurrency in the territory of India”. Fortunately, the bill never reached parliament.
Conclusion on Different Cryptocurrency Regulations
The above eight countries represent the spectrum of governments’ attitudes towards cryptocurrencies, from the most open-minded to highly conservative. It should be clear as to who's who after reading this article! Wherever you’re located in the world, it’s best to do your research and seek legal advice before engaging in financial activities involving crypto to ensure you aren't inadvertently breaking local laws.
What are your thoughts on the different cryptocurrency regulations across the globe? Let us know in the comments below.
About the author:
Jack Spade is a crypto enthusiast who loves following and writing about crypto news. Besides, he's an aspiring novelist and has a Medium account where he posts about all kinds of interesting topics.
The above references an opinion and is for informational purposes only. Do not take this as personalised financial advice or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.
Last updated: 18/09/2021