MiCA and Other Cryptocurrency Regulations Around the World
Explore the diverse landscape of cryptocurrency regulations globally, understanding the legal frameworks, taxation, and future prospects in key countries and...
Explore the diverse landscape of cryptocurrency regulations globally, understanding the legal frameworks, taxation, and future prospects in key countries and...
As cryptocurrency has evolved beyond just speculative investment and become a new asset class, governments worldwide have started considering ways to regulate it. Different countries have taken their own unique approaches towards regulating cryptocurrency, such as in the US, where the Biden administration offered more clarification on its use and regulation in 2022, potentially leading to the digital dollar.
Cryptocurrency is also subject to varying classifications and tax treatments in different countries, as cryptocurrency regulations around the world are constantly evolving and can be difficult to keep up with.
This guide aims to provide a summary of cryptocurrency regulations around the world, legislative attitudes, and associated activities in different countries, helping readers navigate these regulations and understand the evolving landscape.
In the United States, cryptocurrencies are not recognized as legal tender. Cryptocurrency exchanges are legal, although the regulations around them vary from state to state.
While there is no consistent legal approach at the state level, the US is working on developing federal cryptocurrency legislation. The Financial Crimes Enforcement Network (FinCEN) views cryptocurrency tokens as “other value that substitutes for currency” and considers cryptocurrency exchanges to be money transmitters.
The Internal Revenue Service (IRS) defines cryptocurrency as a digital representation of value that can function as a medium of exchange, unit of account, and/or store of value and has provided tax guidance accordingly.
In the US, cryptocurrency exchanges are legal but must comply with regulations under the Bank Secrecy Act (BSA), which includes registering with FinCEN, implementing anti-money laundering and counter-terrorism financing programs, maintaining records, and submitting reports to authorities.
The SEC considers cryptocurrencies to be securities and applies securities laws to digital wallets and exchanges, while the CFTC sees Bitcoin as a commodity and allows public trading of cryptocurrency derivatives.
The US Treasury is calling for crypto regulations to combat criminal activity, and in 2020, FinCEN proposed new regulations for data collection on crypto exchanges and wallets. The Justice Department is working with the SEC and CFTC to ensure consumer protection and streamlined regulatory oversight.
The Biden administration is focusing on stablecoins and issued a set of recommendations for new legislation in 2021. New rules included in the infrastructure bill now require cryptocurrency exchanges to comply with relevant AML/CFT reporting and record-keeping obligations.
India has not taken a clear stance on the regulation of cryptocurrencies and neither authorized nor prohibited their usage. A proposed bill that would forbid all private cryptocurrencies is still pending approval.
Meanwhile, the government imposes a 30% tax on all cryptocurrency investment profits and a 1% tax deduction at source (TDS) on crypto trades. There is no proper guideline for investors which, admittedly, takes due course of time however it is expected the country will work with other G20 nations to regulate the digital assets. Mind you, India currently holds the presidency of the G20 nations and is openly expressing two views to start with – one, digital assets can be effectively regulated only through concerted efforts by major nations across the world. Two, it expressed concerns of dollarization of the Indian economy as a result of cryptocurrencies largely trading through USD pairs.
All said, India is still in a unique position to take advantage of the merits of Web3 as Indian academia’s have introduced the underlying technologies and concepts of decentralization in its student ambassador programs, hackathons, webinars, workshops and research papers despite the fact there are no formal curriculum crafted or approved officially by national education boards. In one way, it just shows the world is opening up to embrace the embedded vision about restoring the power back to where it belongs – to the people – is indeed realistic.
The more countries like India and the US discourage the crypto economy, the more likelihood innovations and jobs will move outside their borders, which by the way is happening already. Additionally, India is developing a digital version of its national currency, the rupee, which is expected to be launched during the 2022-2023 fiscal year.
The regulations regarding crypto exchanges in India have been growing increasingly strict.
In 2018, the Reserve Bank of India banned banks and regulated financial institutions from dealing with cryptocurrencies, effectively prohibiting the trade of digital currencies on domestic exchanges and forcing them to shut down. However, the country’s Supreme Court overturned the ban in 2020, ruling it unconstitutional and allowing exchanges to reopen.
The Indian government has expressed its opposition to private cryptocurrencies at the least, but a committee met with crypto exchange representatives and recommended that cryptocurrencies should be regulated instead of banned. As of 2023, there is not even one cryptocurrency bill that was considered by the Indian Parliament, leaving the status of cryptocurrencies in India uncertain. India definitely is looking towards a solution many G20 nations would passably agree on to address the growing Web3 ecosystem while at the same time exercise caution keeping the larger public’s insurance in mind.
In Canada, cryptocurrencies are not considered legal tender, but they can be used to buy goods and services at places that accept them. Canada has taken an active approach towards regulating cryptocurrencies, mainly through provincial securities laws.
The Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) was updated in 2014 to include entities dealing with virtual currencies. Additionally, the Canadian Securities Administrators (CSA) has issued notices on how securities laws apply to cryptocurrencies.
Cryptocurrency transactions have been taxed by the Canada Revenue Agency since 2013. As of June 1, 2020, Canadian cryptocurrency exchanges are required to register with FinTRAC.
Canadian exchanges are regulated in a similar way to money services businesses, with the same due diligence and reporting requirements. In 2020, the Virtual Currency Travel Rule came into effect, requiring financial institutions and money services businesses to keep records of all cross-border cryptocurrency transactions.
In 2021, the Canadian Securities Administrators published guidance for crypto issuers on how to protect their assets and disclose relevant risk factors. Additionally, cryptocurrency exchanges are now required to register with FinTRAC under amendments to the PCMLTFA.
There are currently no indications that there will be significant new cryptocurrency legislation in Canada in the near future. The Canadian government and cryptocurrency exchanges are likely to take some time to assess the effects of recent regulatory changes before considering any further action.
Singapore considers bitcoin as “goods” rather than legal tender, and it allows cryptocurrency exchanges and trading.
While the country’s tax authority applies Goods and Services Tax to bitcoins, Singapore’s Monetary Authority requires cryptocurrency exchanges to register with them. Although the government generally takes a fair position on cryptocurrency, it has also warned the general public of the risks of investing in crypto products.
Furthermore, the Monetary Authority of Singapore (MAS) indicated that it would regulate digital tokens’ issuance if those tokens were classified as securities. In 2022, Singapore further reinforced its warning and prohibited crypto service providers from advertising their services to the public through guidelines.
MAS has generally been flexible in regulating cryptocurrency exchanges, making use of existing legal frameworks. Under the Payment Services Act 2019 (PSA), cryptocurrency businesses, including exchanges, came under the regulatory authority of MAS from January 2020 and were required to obtain a MAS operating license. Since then, several prominent crypto service providers have received licenses from MAS, such as DBS Vickers and Independent Reserve.
The PSA that came into effect in Singapore in January 2020 requires crypto businesses to obtain a license given by the Monetary Authority of Singapore.
While the PSA brings crypto businesses in alignment with FATF’s recommendations, MAS is expected to introduce additional regulations, including financial sector regulations with stronger countering the financing of terrorism (AML/CFT) and anti-money laundering standards and higher technology risk management requirements.
Cryptos and crypto exchanges are legal in Australia, and the country has taken a progressive stance toward the regulation of cryptocurrencies. In 2017, the Australian government declared cryptocurrencies to be legal and specified that Bitcoin and cryptocurrencies with similar characteristics should be treated as property and subject to Capital Gains Tax.
Prior to this, there was controversy over the double taxation of cryptocurrencies under Australia’s goods and services tax (GST), and the change in tax treatment reflects the country’s forward-thinking approach to cryptocurrency.
Cryptocurrency exchanges are required to register with AUSTRAC, the Australian government agency responsible for countering money laundering and terrorism financing.
The Australian government has required cryptocurrency exchanges in the country to register with AUSTRAC since 2018. These exchanges must also comply with AML/CFT reporting obligations, maintain records, and verify user identities. Unregistered exchanges face financial penalties and criminal charges. In 2019, ASIC updated regulations for cryptocurrency trading and ICOs, and in 2020, many exchanges were required to delist privacy coins by Australian regulators.
Australia has been actively regulating cryptocurrency and has recently announced plans to introduce a new licensing framework specifically for crypto exchanges. This framework will allow consumers to securely buy and sell cryptos in a regulated arena. The country’s goal is to position itself as a leader in the global effort to regulate technology companies.
The use of cryptocurrencies is legal in Japan, and they are treated as a form of property. The country’s regulatory approach towards cryptocurrencies is the most progressive in the world.
Japan recognizes Bitcoin and other cryptocurrencies as legal property under the Payment Services Act (PSA). Investors who gain profits from cryptocurrencies are taxed accordingly, categorized as “miscellaneous income.”
Recent regulations include changes to the PSA and the Financial Instruments and Exchange Act, which introduced the term “crypto-asset” and brought cryptocurrency custody service providers under the scope of the PSA.
The amendments also placed further restrictions on managing users’ digital money and eased regulation on crypto derivatives trading. Cryptocurrency exchanges are legal in Japan, but they must register with the Financial Services Agency.
While exchanges are legal in Japan, high-profile hacks have made regulations an urgent national concern. To regulate trading and exchanges, the Financial Services Agency (FSA) requires cryptocurrency exchanges to register with the FSA and comply with stricter anti-money laundering, counter-terrorist financing, and cybersecurity requirements.
The Japanese Virtual Currency Exchange Association and Japan STO Association were established in 2020 to provide advice and promote compliance for unlicensed exchanges.
The FSA in Japan has been paying closer attention to anti-money laundering (AML) concerns related to cryptocurrencies and is planning to propose new legislation in 2022 to regulate stablecoin issuers.
The proposed legislation aims to address risks to customers and limit opportunities for money laundering by introducing new security protocols and imposing new obligations on cryptocurrency service providers to report suspicious activity. Despite this, Japan continues to be a welcoming environment for cryptocurrencies.
Cryptocurrencies are not considered legal tender in South Korea. However, cryptocurrency exchanges are legal but subject to strict regulation overseen by the Financial Supervisory Service (FSS).
The use of anonymous accounts in crypto trading was banned by the South Korean government in 2017, and the hosting of trades of Bitcoin futures by local financial institutes was also prohibited.
There is no clear guidance on the taxation of cryptocurrencies in South Korea as they are not considered currency or financial assets; hence cryptocurrency transactions are tax-free for now. But the Ministry of Strategy and Finance has expressed its intention to impose taxes on income from cryptocurrency transactions and will release a taxation framework soon.
In South Korea, cryptocurrency exchanges are legal but are subject to strict regulations. Banks with accounts held by crypto exchanges are subject to strict reporting obligations imposed by the Financial Services Commission (FSC).
All South Korean exchanges must now comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) regulations, and they must obtain an operating license from the Financial Intelligence Unit (FIU) of the FSC.
South Korea’s planned cryptocurrency taxation, which was originally scheduled to take effect in January 2022, has been postponed to a future date. The country is also aiming to further align its cryptocurrency regulations with the anti-money laundering guidelines set forth by the FATF.
China has some of the strictest regulations on cryptocurrencies in the world. Cryptocurrencies are not considered legal tender in China, and the People’s Bank of China (PBOC) has banned financial institutions from handling Bitcoin transactions since 2013.
In 2017, the government went even further by banning initial coin offerings (ICOs) and domestic cryptocurrency exchanges.
Despite the bans, cryptocurrencies continue to circulate in China through peer-to-peer trading and offshore exchanges. To combat this, the government has taken steps to block access to offshore cryptocurrency exchanges and has pressured Chinese internet companies to remove cryptocurrency-related content.
In an amendment to China’s Civil Code in 2020, the Chinese government ruled that cryptos have the status of property for determining inheritances.
In June 2021, China banned all domestic crypto mining, and in September 2021, it outlawed cryptocurrencies altogether, including foreign exchanges. This has caused a major sell-off in tokens, but some workarounds are possible using foreign exchanges and websites that China’s firewall doesn’t catch.
The Chinese government has shown interest in blockchain technology and has been working on an official digital currency for several years. In 2021, the People’s Bank of China told that it had completed initial tests of its digital currency in several cities. The e-CNY token is designed to replace cash and coins and is expected to be accepted as payment for various goods and services, including transportation fares and tolls.
The United Kingdom does not have specific regulations for cryptocurrencies, but it does not consider them as legal tender. Cryptocurrency exchanges in the U.K. must comply with registration requirements enforced by the Financial Conduct Authority (FCA).
The H.M. Revenue and Customs (HMRC) has issued a brief that outlines how cryptocurrencies are treated for tax purposes, noting that they have a distinct identity and cannot be equated with traditional investments or payments. The tax implications of cryptocurrencies depend on the activities and parties involved, and any gains or losses are subject to capital gains tax.
The U.K. has implemented regulations on cryptocurrency exchanges through its domestic laws after leaving the E.U. in 2020, which require them to register with the Financial Conduct Authority and comply with anti-money laundering and counter-terrorism financing reporting obligations.
The FCA has issued guidelines indicating that all entities involved in activities related to crypto assets must adhere to the Terrorist Financing, Money Laundering, and Transfer of Funds Regulations 2017 and comply with the latest FATF guidelines.
The U.K.’s regulation of cryptocurrencies is expected to remain similar to that of the E.U. in the short term, although some differences may arise in the future. The U.K. government has indicated that it plans to consult on regulating certain cryptocurrencies under financial promotions rules and is considering a broader regulatory approach to crypto assets.
Cryptocurrencies are legal in the European Union, but regulations surrounding cryptocurrency exchanges vary between member states. In terms of cryptocurrency taxation, member states charge capital gains tax on profits from cryptocurrencies, with rates ranging from 0% to 50%.
The Court of Justice ruled in 2015 that exchanging traditional currency for cryptocurrency should not be subject to value-added tax (VAT).
In January 2020, the E.U.’s Fifth Anti-Money Laundering Directive (5AMLD) was introduced, bringing cryptocurrency-fiat currency exchanges under anti-money laundering legislation across the E.U. This requires exchanges to perform customer due diligence and fulfill reporting requirements.
Later, in December 2020, the Sixth Anti-Money Laundering Directive (6AMLD) came into effect, which made compliance for cryptocurrencies more stringent by adding cybercrime to the list of money laundering predicate offenses.
The regulation of cryptocurrency exchanges across the European Union (E.U.) is not consistent and varies by member state. Some countries, such as Germany, France, and Italy, require exchanges to register with their regulators, which can then authorize them to operate across the entire bloc. However, there is currently no EU-wide regulation of exchanges.
The E.U. is actively considering implementing further regulations related to cryptocurrencies. The European Commission launched a public consultation initiative in January 2020 to gather input on how crypto assets fit into the existing regulatory framework. This was followed up in September 2020 with the introduction of the Markets in Crypto-Assets Regulation (MICA), which proposed new licensing requirements for crypto-asset issuers, industry conduct rules, and additional consumer protections.
The European Commission published a new set of legislative proposals in July 2021 that will extend the transfer of fund regulations (TFR) to all virtual asset service providers (VASPs) across the E.U. and require the collection of information about senders and recipients of cryptocurrency transfers.
The regulations surrounding cryptocurrencies and exchanges vary widely across Latin America. Bolivia has banned cryptocurrencies and exchanges, while Ecuador has banned all cryptocurrencies except for the government-issued SDE token.
However, in countries such as Mexico, Argentina, Brazil, Venezuela, and Chile, cryptocurrencies are commonly used as payment by merchants. Cryptocurrencies are generally considered assets for tax purposes and are subject to capital gains tax across the region.
Brazil, Argentina, and Chile also impose income tax on cryptocurrency transactions in certain cases.
El Salvador became the first Latin American country to recognize Bitcoin as a legal tender in September 2021, allowing its use in all transactions. Despite foreign and domestic criticism, the Salvadoran government has plans to build a “Bitcoin city” that will be funded by the cryptocurrency.
Cryptocurrency exchanges in Latin America are not subject to specific regulations in most countries, and some do not regulate them at all. This lack of regulation has made the region attractive for businesses looking to enter the cryptocurrency market, but it has also caused tensions with traditional banks.
In Chile, some banks have closed accounts held by cryptocurrency exchanges, and court rulings have provided only temporary protection. Mexico is an exception, as it regulates cryptocurrency exchanges to some extent through the Law to Regulate Financial Technology Companies.
Although many Latin American countries are concerned about the potential risks associated with cryptocurrencies, few have implemented significant regulations to address those risks. Some countries, like Chile and Mexico, are taking steps towards regulation.
Colombia has established a sandbox environment for cryptocurrencies to test their business models, and Brazil’s Securities Commission and Central Bank have also introduced regulatory sandboxes.
Cryptocurrency regulations around the world differ, with some countries completely banning their use while others have embraced them.
In the United States, the legal status of cryptocurrencies varies from state to state. In New York, exchanges must obtain a BitLicense, while other states have fewer requirements.
In Europe, the E.U. has implemented the Fifth Anti-Money Laundering Directive, which includes regulations for cryptocurrency exchanges, while countries such as Germany and France have their own registration and licensing requirements.
In Latin America, cryptocurrency regulations are sparse, with some countries completely banning their use, including Bolivia and Ecuador. However, in Mexico, Argentina, Brazil, Venezuela, and Chile, cryptocurrencies are widely accepted.
In Asia, Japan was the first country to introduce a regulatory framework for cryptocurrencies in 2017. In India, the legal status of cryptocurrencies is in a state of flux. A proposed bill that would forbid all private cryptocurrencies is still pending approval. Meanwhile, the government imposes a 30% tax on all cryptocurrency investments and a 1% tax deduction at source (TDS) on crypto trades. Other countries, such as South Korea and Singapore, have also implemented their own regulations, while China has banned the use of cryptocurrencies.
In Africa, regulations for cryptocurrencies are still in their infancy, with some countries, such as Nigeria and South Africa, implementing their own guidelines.
In conclusion, cryptocurrency regulations around the world vary greatly. While some countries have taken a hardline approach, others have embraced the opportunities that virtual currencies offer. Cryptocurrency regulations around the world are constantly evolving, and governments around the world are working to develop comprehensive frameworks to regulate the market.
It is likely that we will see further developments in this area in the coming years as the popularity of cryptocurrencies continues to grow. As the market matures, it is important for investors, traders, and businesses to stay up-to-date with the latest regulatory changes and comply with local laws in order to avoid potential legal and financial risks. The authorities across the world largely are kinder to the underlying technologies of cryptocurrency and are using them as a reference point for instant and affordable cross border payment solutions, digitalizing the economy and watch how common public are adopting them to develop the skill sets required for future jobs in blockchain and AI industries.
Disclaimers: Opinions expressed in this publication are those of the author(s). They do not necessarily purport to reflect the opinions or views of Shardeum Foundation.
About the Author: Anuska is an independent freelance writer freshly exploring web3 and blockchain space. Her articles blend personal exploration with established editorial methods, and she’d love to hear your thoughts in the comments!
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