During 2015 – 2021, the digital asset sector experienced increased market activity, accompanied by evolving regulation with close attention to cryptocurrencies and crypto businesses. Governance regulation could have a huge impact on the digital currency field and become one of the most significant risks for the industry.
As crypto assets matured, some authorities around the globe attempted to include the cryptocurrency industry in the existing regulatory framework, while others placed a ban on crypto-oriented activities. Below we describe some regulatory actions directed to digital assets and highlight countries depending on their attitude toward cryptocurrencies.
Graph 1: Crypto Regulation World Map in 2021 
The majority of countries in the European Union recognize cryptocurrencies as legal tender. However, regulatory frameworks and taxes vary across different member states. In September 2020, the European Commission came up with a framework to enhance consumer protection, manifest clear crypto industry rules, and put in place new licensing requirements.
Many European countries agreed to the EU Fifth Anti-Money Laundering Directive (AMLD5).
Among other Bitcoin-friendly countries in Europe, Slovenia holds the top spot. It’s worth mentioning that the country has the highest market capitalization of blockchain projects per capita. All cryptocurrency exchanges and dealers participating in cryptocurrency trades are considered “financial institutions” for purposes of the Anti-Money Laundering Act. Corporations with a tax residence in the country must pay taxes at the corporate rate. Token distribution during ICOs is also subject to tax rates of up to 50%.
Switzerland is one of the most crypto-friendly countries in the world. ‘Crypto Valley’, the largest blockchain and cryptographic technologies ecosystem worldwide, is located in Switzerland. Blockchain and cryptocurrency companies of Switzerland should comply with the requirements issued by Switzerland’s financial markets regulator, the Swiss Financial Market Supervisory Authority (FINMA).
Cryptocurrency profits made by a qualified individual through investing and trading are treated as tax-exempt capital gains. However, income from professional trading and mining is subject to income tax. Notably, tax laws differ regionally, and an annual “wealth tax” is levied on the total amount of cryptocurrencies owned, along with the rest of an individual’s net worth.
Portugal exhibits an open attitude towards cryptocurrencies. In April 2020, Portugal established a “Digital Transitional Action Plan” to promote digitization by creating the appropriate climate for business innovation and digital transformation to take place.
Portuguese tax authorities officially validated the legal status of cryptocurrencies in the country. At the same time, Portugal complies with EU regulation and agrees to the Fifth European Directive on Anti-Money Laundering (AMLD5).
The country’s unusual tax regime (NHR) has attracted many crypto traders as it allows tax exemptions and reductions for a 10-year period for individuals of high cultural or economic value. However, businesses that accept digital currencies as payment for goods and services are liable to pay income tax.
Malta is one of the go-to places globally for crypto and blockchain businesses, the country is a leader in the promotion of ICO startups and the development of blockchain technologies. Cryptocurrencies in the country are legal. On 4 July 2018, Malta’s parliament passed three bills into law, establishing a regulatory framework for blockchain, cryptocurrency, and Distributed Ledger Technology (DLT).
Malta doesn’t apply capital gains tax to long-held digital currencies like Bitcoin, but crypto trades are considered similar to day trading in stocks or shares, and attract a business income tax rate of 35%. However, this can be mitigated down to between five percent and zero, through “structuring options” available under the Maltese system. Transactions involving cryptocurrencies as a means of payment are generally exempt from VAT.
Estonia was a favourite country in terms of the number of cryptocurrency exchanges, which went beyond 1300. As the Minister of Finance suggested in January 2021, the regulations in Estonia will require “virtual assets businesses” to be registered and have an operating office in the country. Estonian crypto companies will be also supervised by FSA, which will require the minimum capital and IT standards, reporting and audits.
Crypto assets in the UK are considered as property but not as legal tender. All legal entities in the country involved in cryptocurrency activities must register with the Financial Conduct Authority (FCA) and meet all the requirements related to know your customer (KYC), anti-money laundering (AML) and combating financing of terrorism (CFT). The UK’s cryptocurrency exchanges are not allowed to offer crypto derivative trading. Capital gains from investing in digital assets are taxable and depend on the crypto activity.
Germany became one of the first countries to allow citizens and legal entities to make operations with cryptocurrencies by licenced exchanges and custodians. Businesses must be licensed with the German Federal Financial Supervisory Authority (BaFin).
According to German laws, cryptocurrencies are exempt from capital gains tax if the total profit generated from private sales transactions in the calendar year was less than 600 Euros and sales of cryptocurrencies held over a year. However, it doesn’t work this way for businesses. Startups incorporated in Germany need to pay corporate income taxes on cryptocurrency gains, similar to any other asset.
But in 2021, a controversial new tax law came into force which effectively killed crypto derivatives trading in Germany, as losses can no longer be deducted. The legislation reflects moves across Europe to regulate derivatives.
The main body regulating the digital assets industry in Denmark is the Danish Financial Supervisory Authority (DFSA), however the field is influenced by EU law.
An amendment in January 2020 to the Danish Act on Measures to Prevent Money Laundering and Financing of Terrorism determines virtual currency in Denmark as “a digital representation of value that is not issued or guaranteed by a central bank or a public authority, is not necessarily attached to a legally established currency and does not possess a legal status of currency or money, but is accepted by natural or legal persons as a means of exchange and which can be transferred, stored and traded electronically.”
Lithuania specifies cryptocurrencies as non-regulated digital money that can be used for payments and they are issued and guaranteed by a non-central bank.
Crypto companies have to register with the country’s Centre of Registers and adopt extensive KYC and AML procedures, as well as inform the Financial Crime Investigation Service (FCIS) about large transfers.
Lithuania State Tax Inspectorate sees cryptos as “property” and collects a 15% rate on the gains.
Bitcoin is legal in the territory of Sweden and accepted by the Swedish Financial Supervisory Authority (FSA) and the central bank. Cryptocurrencies are considered as assets and taxed. Custodians, wallet providers, and exchanges should be registered and comply with AML requirements.
Canada has proved itself as a “crypto-friendly” country which accepts some bitcoin exchange-traded funds (ETFs). Crypto trading platforms, dealers and firms dealing with crypto in Canada are required to register with the local provincial regulators according to the guidance of Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organisation of Canada (IIROC). The requirements also apply to foreign-based firms if they have Canadian customers.
The Canada Revenue Authority (CRA) generally considers cryptocurrency as a commodity for purposes of the Income Tax Act.
In the United States, there are no federal regulations for cryptocurrencies. State governments regulate cryptocurrency exchanges and each state has its own set of rules.
Currently, most US regulatory actions are administered by the SEC. Besides the SEC, several federal agencies are involved in regulation, however, they differ in viewpoints when it comes to defining digital asset classes.
- Security and Exchange Commission (SEC) classifies digital assets as securities
- Commodity Futures Trading Commission (CFTC) considers cryptocurrencies to be commodities
- Treasury treats crypto assets as currency
Alongside, the following federal agencies are controlling the crypto industry activities in the US:
- Office of the Comptroller of the Currency (OCC) monitors activities of financial institutions involved in the trading or custody of digital assets
- Internal Revenue Service (IRS): In May 2021, the US Treasury Department released documentation containing a statement to report any transaction of cryptocurrency worth more than $10,000 to the IRS.
- Federal Trade Commission (FDC) is in charge of fighting fraudulent activity/scams involving cryptocurrencies.
- Financial Crimes Enforcement Network (FinCEN) heads anti-money laundering efforts and monitors for detection of national security risks related to cryptocurrencies.
- Federal Deposit Insurance Corporation (FDIC) covers some cryptocurrencies, depending on where they are held.
It is highly likely that new US regulatory agencies will become involved in cryptocurrency compliance monitoring.
In general, North American countries are crypto-friendly. Crypto Asset exchanges in the US, Mexico, and Canada are required to be licensed and must comply with AML requirements.
Asian Financial Service hubs will seek to tighten regulation of cryptocurrencies and maintain balances to minimise speculative risks and safeguard against regulatory compliance violations. Less developed countries with weak payment systems are adopting cryptocurrencies as a tool for payment and funds transfer.
Graph 2: Cryptocurrency regulation in Asia 
Singapore became a global hotspot for crypto innovation with market-friendly regulatory history followed by launches of crypto asset operators.
The authorities consider crypto assets “intangible property” rather than legal tender. The Monetary Authority of Singapore (MAS) licences traditional and cryptocurrency exchanges as claimed by the Payment Services Act (PSA). The AML/CFT provisions under the PSA address the risk of financial crimes and promote best practises, including KYC, to help crypto businesses comply with the new regulatory framework.
The country has favourable conditions for long-term investors, because long-term gain is not taxable. Meanwhile, the companies that have regular crypto transactions or accept cryptocurrency as payment
are obligated to recognize their income, which is subject to tax.
The Securities and Exchange Commission (SEC) of Thailand regulates the operations of cryptocurrency businesses. According to the Emergency Decree on Digital Asset Businesses B.E. 2561, issued in 2018, the companies are treated as financial institutions for AML purposes, and among other things they should have a licence and monitor for suspicious activities.
Gains are taxed as income where the tax rate is 35%.
Japanese authorities classify crypto assets as property under the Payment Services Act (PSA). Crypto exchanges operating in the country should register with the Financial Services Authority (FSA) and comply with AML/CFT and other requirements. Crypto gains are considered as miscellaneous income and taxed accordingly.
South Korea regulators don’t recognize cryptocurrencies as legal tender or financial assets. Therefore, there is no tax on capital gains. However, operations of crypto exchanges are administered by the South Korean Financial Supervisory Service (FSS), which monitors compliance with KYC/CFT. As of September 2021, digital asset service providers must register with the Korea Financial Intelligence Unit (KFIU), a division of the Financial Services Commission (FSC).
In April 2018, the RBI issued a notice preventing financial and payment institutions from dealing with cryptocurrencies. However, it was reversed by the Supreme Court order in March 2020. Despite widespread concerns, scepticism, and the prior bans on cryptocurrencies, India has encouraged innovation and the use of blockchain.
China is the country with the most rigorous regulations towards the crypto industry.
It became the first major country that restricted financial and payment institutions on Bitcoin-related operations back in 2013.
- In 2017, China prohibited initial coin offerings (ICOs)
- In 2019, the country announced that it would block access to all domestic and foreign cryptocurrency exchanges and ICO websites
- In 2021, People’s Republic of China banned the crypto industry in different phases. Starting from May 2021, the country limited any cryptocurrency related actions for financial and payment institutions, including exchange services, using cryptocurrency for saving or investment purposes. In June, it prohibited mining in certain provinces, and finally limited all crypto transactions and crypto mining in September. It’s worth noticing that China was previously a focal point of crypto mining and trading activities, and, according to Cambridge Centre for Alternative Finance, the country gathered about 70% of global Bitcoin mining.
The authorities of China justified the full ban decision by the arguments about environmental pollution and financial risks caused by crypto-oriented transactions.
In January 2022, the Bank of Russia proposed a complete ban on cryptocurrency activity in the country. However, Russian department agencies formed a judgement that the cryptocurrency market should be regulated and not banned in order to ensure its transparency. At the end of January 2022, the Deputy Chairman of the Government approved a roadmap for regulating the cryptocurrency market until the end of 2022. The roadmap suggests introducing AML/KYC procedures for digital asset platforms with determination of its regulatory status, establishing a supervisory body and imposition of penalties.
In some African countries such as Kenya and Ghana, there is no regulation governing crypto transactions. Moreover, these countries have recorded a major surge in crypto transactions over the past couple of years.
According to The Block quoting Bloomberg, South Africa’s financial regulatory watchdog plans to introduce crypto regulations in 2022. The country’s Financial Sector Conduct Authority (FCSA) is about to establish a set of rules that will provide adequate investor protection, especially amid growing cryptocurrency-related fraud in South Africa.
Latin America has seen significant regulatory uncertainty related to crypto over the years. Some countries, such as Peru and Ecuador, have severely restricted or banned crypto assets, while others, in contrast, accepted and supported it. For example, El Salvador became the first country which made Bitcoin a legal tender in its territory. The rationale of President Nayib Bukele was to reduce poverty in the country and involve more people in the banking network. In Venezuela, the crypto asset markets are strongly monitored, however, the government sponsors an oil-backed crypto asset (Petro), which became a major problem for US law enforcement and other jurisdictions, which tried to impose sanctions on the state.
Blockchain technologies and cryptocurrency are developing and promising industries, which are rapidly gaining popularity globally. Some countries encourage growth of cryptocurrency startups, others have uncertainties, while some ban cryptocurrencies and regard the decentralization as a threat. With the example of China, the world experienced that the ban doesn’t provide the desirable effect. For instance, Chinese miners simply changed their location, and trading operations involving cryptocurrency accepted more sophisticated withdrawal schemes.
Nevertheless, despite the existing volatility in the cryptosphere and the risks of fraud, more and more governments have been giving the green light to holding ICOs in their territories and creating appropriate regulation. Various banks have also been exploring the possibilities of blockchain for their intrabank purposes.
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