Cryptocurrencies, also known as digital tokens, do not possess legal tender status and use peer-to-peer technology for their issuance and transfer. Their appeal lies in being quickly transferred anonymously even across borders.
However, investing in cryptocurrency presents significant risks; government regulation could severely undermine their viability and make an investment an illogical choice.
U.S.
Cryptocurrencies are digital tokens that enable people to make direct payments between themselves. With no legislated or intrinsic value, their worth rests solely with what people are willing to pay on the market – this makes cryptocurrencies highly versatile purchasing tools for goods and services of all kinds.
Many countries are wary of cryptocurrency because it can facilitate illicit activities like drug trafficking and money laundering. Some have outright banned them while others try to regulate them – the United States government is currently working on cryptocurrency regulations; their Justice Department issued a memo in 2021 asking financial regulators to clarify how they treat cryptocurrency companies and exchanges.
While Bitcoin and other cryptocurrencies are legal in the United States, it’s important to remember they don’t constitute legal tender. Most businesses won’t accept them as payment for taxes or mortgages. Furthermore, any profits earned when selling off your cryptocurrencies must be reported and taxed accordingly. Finally, receiving cryptocurrency as payment or reward from mining will require filing taxes accordingly.
Cryptos in the US are treated like property, rather than currencies, so when sold they are subject to capital gains taxes. Furthermore, any time cryptocurrency is given as payment or reward for mining it must be taxed at its fair market value at receipt. Lastly, any cryptos classified as commodities could potentially fall under regulation from Commodity Futures Trading Commission (CFTC), although Wyoming and Virginia recently passed laws permitting state-chartered digital asset depository banks that will provide custodial and fiduciary services for blockchain assets.
Canada
As cryptocurrency use continues to surge in Canada, more people are questioning its legality. Generally speaking, yes it is legal but with certain caveats; Canadians can buy cryptocurrency at stores that accept it or sell them through digital exchanges like stock markets; although not legally considered legal tender, cryptocurrencies still fall under anti-money laundering and countering the financing of terrorism regulations that apply across Canada.
When purchasing or selling cryptocurrency for profit, individuals must report any gains or losses on their tax return as it is considered commodities by Canada Revenue Agency and must be reported as barter transactions. Furthermore, since cryptocurrencies possess high speculative values they must also comply with securities law regulations pertaining to accredited investors only.
Cryptocurrencies may not be legal tender in Canada, but they can still be used to purchase goods and services at companies accepting them. The Canada Revenue Agency advises those considering investing in cryptocurrencies to carefully consider their risk tolerance and diversification strategy as crypto does not offer the same protections as savings accounts held with financial institutions.
Due to regulatory ambiguity surrounding cryptocurrency investing, investors have been wary of entering this space. Although government regulation may take time to develop, users must abide by all pertinent laws and stay current with changes within the industry. Our BLG team can assist in navigating this complex area of law and answer your inquiries regarding cryptocurrencies – registration, sale and purchase as well as compliance with Proceeds of Crime (Money Laundering) and Terrorist Financing Act requirements can all be handled for you!
U.K.
Cryptocurrencies are lines of computer code with monetary value that can be sent from one person to another online. Their technology is extremely complicated, which makes regulating them an attractive proposition for governments: some worry about their volatility or potential for illicit activity; while others might worry about lack of central control. Some countries already ban or regulate cryptocurrencies.
The UK is shifting towards cryptocurrency regulation, yet its long-term approach remains unknown. In April 2019, the Jurisdiction Taskforce (UKJT) issued a Legal Statement[xxxiv] on cryptoassets’ legal status; this statement found that English law recognizes them as property that can be transferred or assigned; although this development was significant, no answers were given as to whether this approach will result in effective enforcement of rights in future.
In 2022, the Financial Conduct Authority held several CryptoSprint events to discuss how English law could apply to cryptocurrency transactions. They published guidance in January 2022 stating that advertising the sale of a cryptoasset does not fall within its definition of an investment; or is conducted by someone carrying out activities regulated under money transmission or payment services/e-money activities subject to authorisation under PSRs/EMRs; in case of futures/options trading, being classified as commodities is also not considered a regulated activity.
Luxembourg does not impose specific cryptocurrency regulations, yet their government’s legislative approach is generally pro-cryptocurrency. For instance, taxes treat cryptocurrencies as assets which may incur capital gains taxation.
Australia
Australian authorities were slow to acknowledge cryptocurrency regulation; however, the growing popularity of cryptos prompted it to take active steps toward creating rules for this emerging industry. New regulations were developed for both initial coin offerings (ICOs) and cryptocurrency exchanges to limit traditional financial risks as well as prevent money laundering, terrorist financing and criminal activity. Furthermore, stronger cybersecurity measures are now essential following recent hacks at popular exchanges like FTX and MTGOX which left investors out-of-pocket; demand for stronger security has never been greater.
Australian Securities and Investments Commission (ASIC) regulates cryptocurrency assets as digital assets. ASIC has developed detailed guidelines that outline best practices for initial coin offerings (ICOs), exchanges and other cryptocurrency services providers; from how to classify different tokens to anti-money laundering rules and KYC requirements. Furthermore, ASIC possesses product intervention powers which it may use against marketwide issues or specific business models that pose consumer detriments; this could conceivably impact marketing and distribution practices of crypto assets within Australia.
ASIC has also stated that any foreign-registered company offering a regulated financial product in Australia must obtain an Australian Financial Services Licence (AFSL), unless exempt. To satisfy this requirement, companies must demonstrate they are first-movers in their field and possess reasonable grounds to believe their product has inherent utility or value for Australian market users.
Japan
With recent high-profile cyber breaches such as Coincheck’s loss of $530 million worth of digital currency, crypto rules have become an important national topic in Japan. Japan’s Financial Services Agency (FSA) increased efforts to regulate trading and exchanges by amending Payment Services Act provisions requiring cryptocurrency exchanges register within six months or be subject to stricter cybersecurity and anti-money laundering/countering the financing of terrorism requirements.
Due to regulatory pressure, many of India’s dozens of exchanges have had to close or alter their business models, yet some have managed to adapt successfully – such as bitFlyer which shifted focus towards crypto-financial products aimed at providing investors with “total cryptocurrency solutions”, including trading, investment and custodial services.
Along with regulating crypto-related businesses, South Africa also enforces stringent anti-money laundering regulations for its citizens. Furthermore, new measures may be taken by the government to tighten regulations surrounding stablecoins – often used as alternatives to fiat currencies but sometimes utilized for illicit activity.
Japan remains an accommodating environment for cryptocurrencies, but mounting anti-money laundering concerns have caused the Financial Services Agency (FSA) to seek additional regulation. Japan plans on passing laws in 2022 which will make it harder for stablecoins to be used for money laundering by mandating stronger security protocols for them; and increasing oversight and compliance among Japanese virtual asset service providers. Nonetheless, Japan remains a leader in cryptocurrency world, setting standards and drawing significant exchange volumes while hosting some of the most innovative blockchain startups around.