As the market capitalization of the cryptocurrency market rises due to price movements and a spike in new tokens, regulators around the world are ramping up the discussion on control of digital asset use and trade.
Only a few countries have declared bitcoin to be illegal. However, this does not imply that bitcoin is “legal tender” – so yet, only Japan has gone so far as to designate bitcoin as such. However, just because something isn’t legal tender doesn’t mean it can’t be used as money — it merely means there are no safeguards in place for either the consumer or the business, and its use as payment is entirely voluntary.
Other jurisdictions are still debating how to proceed. The tactics differ: some smaller countries, such as Zimbabwe, have no problems with making bold statements throwing doubt on bitcoin’s legitimacy. Larger institutions, such as the European Commission, acknowledge the importance of debate and deliberation, whereas the European Central Bank (ECB) considers that cryptocurrencies are not yet mature enough to be regulated. The issue is exacerbated in the United States by a broken regulatory map – who would conduct the legislating, the federal government or individual states?
In other nations, a related topic that has yet to be resolved is whether central banks or financial regulators should keep an eye on cryptocurrencies. In some countries, they are the same thing, but in the majority of developed countries, they are independent organisations with distinct mandates.
Another contentious topic is whether bitcoin should be regulated on a national or international scale. There should be a clear difference between cryptocurrency legislation (is it a commodity or a currency, is it legal tender?) and cryptocurrency businesses (are they money transmitters, do they require licenses?). In a few countries, the considerations are linked together; in the majority of others, they are dealt with individually.
The following is a brief collection of statements made by various governments. This list was most recently updated in July 2020.
The Australian government has been a strong supporter of cryptocurrencies and blockchain technology. It declared in 2017 that cryptocurrencies were legal and that they would be recognized as assets subject to Capital Gains Tax.
The Australian Transaction Reports and Analysis Centre (AUSTRAC) issued new laws in 2018 that require Australian exchanges to register with AUSTRAC, keep records, and authenticate users. Unregistered exchanges will face charges and monetary penalties in the future to combat money laundering and terrorism financing.
Bitcoins are not recognized legal currency in Argentina because they are not issued by the central bank. Despite a robust bitcoin ecosystem, Argentina has yet to develop cryptocurrency legislation, despite the central bank issuing explicit warnings about the hazards involved.
Bangladesh explicitly proclaimed that using cryptocurrency was a “punishable offence” in 2015. Authorities in the country have been on the lookout for illegal bitcoin traders.
The central bank of Bolivia formally prohibited the usage of any currency or tokens not issued by the government in 2014.
Canada was one of the first countries to draft what could be referred to as “bitcoin legislation.” The Governor General of Canada signed Bill C-31 in 2014, designating “virtual currency enterprises” as “money service businesses,” requiring them to comply with anti-money laundering and know-your-client regulations. Subsidiary regulations must be issued before the statute becomes effective.
The government has stated that bitcoin is not legal tender, and the country’s tax authorities have determined that bitcoin transactions are taxable, depending on the type of business.
While China has not banned bitcoin (and President Xi Jinping has continued to praise blockchain developments as critical to technological innovation), financial regulators have cracked down on bitcoin exchanges – in 2017, all major bitcoin exchanges in the country, including OKCoin, Huobi, BTC China, and ViaBTC, suspended order book trading of digital assets against the yuan.
It also appears to be discontinuing preferential treatment (tax breaks and low-cost electricity) for bitcoin miners.
The National Assembly of Ecuador banned bitcoin and decentralized digital currencies in 2014, however the central bank stated that online cryptocurrency trade is not prohibited. Nonetheless, bitcoin is not legal tender and is not an accepted payment option for goods and services.
The Grand Mufti of Egypt declared in January 2018 that bitcoin trading was prohibited under Islamic religious law owing to the risk involved. While not legally binding, it is considered a high-level legal opinion.
That ban, however, was repealed in May 2019, relaxing restrictions by allowing licensed businesses to operate.
The European Union is proceeding with caution when it comes to cryptocurrency regulation, with numerous initiatives underway to involve industry partners in the development of supportive laws. The emphasis appears to be on learning before regulating, while also encouraging innovation and taking into account the ecosystem’s needs.
Members of the European Parliament voted by a significant majority in April 2018 to support a December 2017 agreement with the European Council for measures targeted, among other things, at preventing the use of cryptocurrencies in money laundering and terrorism financing. The EU’s 5th Anti-Money Laundering Directive (5AMLD) was passed into law in early 2020, putting crypto service providers under further scrutiny.
The Indian central bank has issued a handful of public warnings against bitcoin, and the country’s finance minister reiterated in an interview towards the end of 2017 that bitcoin is not legal cash. The government does not currently have any regulations governing cryptocurrencies, although it is considering recommendations.
The central bank, on the other hand, has prohibited Indian financial institutions from dealing with cryptocurrency exchanges and other similar services (a ban that the country’s Supreme Court just affirmed).
There were speculations of a fresh crypto ban in June 2020, which industry insiders eventually dismissed as premature.
Iran’s central bank and one of its main market regulators stated in April 2018 that financial institutions should not deal in bitcoin or other cryptocurrencies. CoinDesk has reported on government blocking of bitcoin trading websites operating in the nation. The Iranian parliament proposed including cryptocurrency in money smuggling regulations in May 2020.
Japan was the first country to declare bitcoin “legal tender,” passing legislation in early 2017 that also subjected bitcoin exchanges to anti-money laundering and know-your-customer regulations (although license applications have temporarily been suspended as the regulators deal with a hack on the Coincheck exchange in early 2018).
The Financial Services Agency (FSA) of Japan has been cracking down on exchanges, suspending two, giving improvement orders to several, and mandating improved security measures in five others. It has also formed a cryptocurrency exchange industry study committee to look at institutional problems surrounding bitcoin and other assets. The FSA set new guidelines for funds investing in cryptocurrency in October 2019.
According to 2018 reports, the National Bank of Kazakhstan recently hinted at plans to prohibit cryptocurrency trade and mining, while no stringent laws have been enacted as of yet.
In 2014, Kyrgyzstan’s central bank decided that utilizing cryptocurrency for transactions was illegal. The Ministry of Economy prepared legislation to tax cryptocurrency mining in August 2019.
Malaysia’s Securities Commission is collaborating with the country’s central bank to develop a framework for cryptocurrency regulation. The country’s Securities Commission began mandating authorization for ICOs as securities offerings in early 2019.
The European island passed a series of blockchain-friendly laws in June 2018, including one outlining the registration criteria for bitcoin exchanges. Earlier in 2020, the Malta Financial Services Authority issued a document addressing issues relating to security token offers.
Mexico’s central bank made a statement in 2014 prohibiting banks from dealing in virtual currencies. The finance ministry confirmed the following year that, while bitcoin was not “legal tender,” it could be used as payment and so was subject to the same anti-money laundering laws as cash and precious metals.
Mexico’s national legislature approved a bill at the end of 2017 that would place local bitcoin exchanges under the supervision of the central bank.
Morocco’s foreign exchange regulator declared near the end of 2017 that the usage of cryptocurrencies within the country breached foreign exchange regulations and would result in penalties.
Namibia is one of the few countries that has explicitly stated that bitcoin purchases are “illegal.”
While Nigerian institutions are not permitted to handle virtual currencies, the central bank is working on a white paper that will outline its official position on the usage of cryptocurrencies as a payment mechanism.
In April 2018, Pakistan’s central bank issued a statement prohibiting Pakistani financial institutions from cooperating with cryptocurrency enterprises. The federal government issued new legislation and licensing schemes for cryptocurrency enterprises in April 2019.
While cryptocurrencies are utilized for a variety of payments and services in Russia, the Russian government has continued to propose new regulations that would restrict crypto development throughout the country. The central bank stated in November 2019 that it would support a ban on crypto payments. In early 2020, new regulatory draft bills were released that would restrict the issuance and operation of digital currency in the country, including the distribution of crypto news.
Singapore, hailed as the world’s crypto haven, has embraced an innovative approach to cryptocurrencies and blockchain, due to the leadership of the Monetary Authority of Singapore (MAS). The MAS announced a new regulatory framework in January 2020 to encompass all Singapore-based cryptocurrency firms and exchanges under anti-money laundering and counter-terrorism funding rules. It later provided a six-month licensing exemption grace period for a number of cryptocurrency companies, including Binance, Coinbase, Gemini, and Bitstamp.
South Africa (SA)
The South African Reserve Bank launched a “sandbox approach” in 2017, testing draft bitcoin and cryptocurrency rules with a small group of entrepreneurs. The Intergovernmental Fintech Working Group recommended in April 2020 that would enhance control of cryptocurrency activity and require businesses to register with AML watchdog the Financial Intelligence Centre.
South Korea outlawed anonymous virtual currency accounts in early 2018. In an effort to reduce cryptocurrency speculation, officials are working on tighter exchange oversight, however the governor of the Financial Supervisory Service has stated that the government will encourage “regular” cryptocurrency trade.
A recent story in the South Korean news stated that the country’s financial regulators are in negotiations with comparable organizations in Japan and China about cooperative oversight of cryptocurrency investment. This is an intriguing shift in strategy.
The Fair Trade Commission ordered 12 of the country’s cryptocurrency exchanges to modify their user agreements in April 2018. In 2020, lawmakers will vote on new standards for cryptocurrency exchanges, which might drive out tiny players who cannot pay increased regulatory obligations.
After reportedly declaring bitcoin unlawful, the Bank of Thailand issued a retraction in 2014, emphasizing that it is not legal tender (but not technically illegal) and warning of the risks.
The government’s executive branch provisionally passed two royal decree drafts in March 2018, establishing official laws to safeguard cryptocurrency investors (along with KYC requirements) and imposing a tax on their capital gains. The drafts have yet to be approved by the cabinet. In August 2019, there were intentions to incorporate cryptocurrency in the country’s anti-money laundering regime.
America the Beautiful
The United States has a disjointed regulatory framework, with legislators at both the state and federal levels accountable for layered authorities and a complicated separation of powers.
Some states are further forward than others in terms of cryptocurrency regulation. New York, for example, issued the contentious BitLicense in 2015, allowing bitcoin businesses to operate legally in the state (many startups pulled out of the state altogether rather than comply with the expensive requirements). Washington approved legislation in mid-2017 that extended money transmitter laws to bitcoin exchanges.
In New Hampshire, bitcoin vendors must obtain a money transmitter license and pay a $100,000 bond. In Texas, the state securities commission is keeping an eye on (and occasionally closing down) bitcoin-related investment possibilities. And California is in a state of limbo regarding bitcoin regulation, having halted development on Bill 1326, which, while criticized for flaws such as overly broad definitions, was considered as less restrictive than New York’s BitLicense.
The Securities and Exchange Commission’s attention at the federal level has been on the use of blockchain assets as securities, such as whether or not certain bitcoin investment funds should be marketed to the public, and whether or not a particular offering is fraudulent.
Given its classification of bitcoin as a “commodity,” the Commodities Futures Trading Commission (CFTC) has a larger potential footprint in bitcoin regulation. While it has yet to develop full bitcoin laws, it has recently concentrated on monitoring the burgeoning futures market. It has also brought charges in other bitcoin-related schemes, emphasizing its intention to exercise jurisdiction over cryptocurrency if it suspects fraud.
The Uniform Law Commission, a non-profit organization dedicated to improving the clarity and coherence of state legislation, has prepared the Uniform Regulation of Virtual Currency Business Act, which several states are considering passing in next legislative sessions. The Act’s goal is to define whether virtual currency activities are money transmission enterprises and what form of license is required. Critics are concerned that it is too similar to the New York BitLicense.
Britain’s Financial Conduct Authority (FCA) sees bitcoin as a “commodity,” and therefore does plan to regulate it. It has hinted, however, that it will step in to oversee bitcoin-related derivatives. This lack of consumer protection has been behind recent FCA warnings on the risks inherent in cryptocurrencies.
In July 2019, the Financial Conduct Authority finalized its guidance on crypto assets, clarifying which tokens would fall under its jurisdiction.
The government of Ukraine has created a working group composed of regulators from various branches to draft cryptocurrency regulation proposals, including the determination of which agencies will have oversight and access. Also, a bill already before the legislature would bring cryptocurrency exchanges under the jurisdiction of the central bank. The Ministry of Digital Information said in February 2020 that it won’t be regulating the crypto mining sector.
Late in 2017, a senior official from Zimbabwe’s central bank stated that bitcoin was not “actually legal.” While the extent to which it can and cannot be used is not yet clear, the central bank is apparently undertaking research to determine the risks.