Cryptocurrency Regulations

Cryptocurrency regulations are in flux as countries adapt their regulatory frameworks to an industry rife with worries over money laundering and fraud. Investors need to remain up-to-date with any policy changes and ensure they follow any rules which apply before investing.

Many countries are already imposing capital gains taxes and mandating that exchanges comply with AML/CFT standards.

Germany

The German Bundesbank recently made it clear that cryptocurrency and related cryptocurrencies are new forms of financial instruments and businesses who facilitate trading them must obtain a licence from BaFin to conduct operations involving these assets. This regulatory approach represents an important step toward legitimizing digital art as an asset class and making capital access simpler for companies.

BaFin, Germany’s financial market regulator, will now apply standard AML/CFT rules to cryptocurrency custodians and exchanges, in line with Germany’s Banking Act which considers such entities “financial services”. While these new regulations will have no bearing on investors directly, they should make it harder for criminals to hide funds within this sector.

Terrorists and organized crime groups will find it harder to use crypto custody platforms for money transfers. Furthermore, the German Bundesbank issued guidance note outlining strict due diligence requirements for these firms.

The German government is currently crafting a law to regulate the issuance and trading of crypto assets, with specific issuer requirements to produce white papers and meet regulatory compliance. Furthermore, special funds will be allowed to invest in these crypto assets with minimum investment amounts set. It will be interesting to observe what effect this new legislation will have on Germany’s crypto industry.

India

Indian cryptocurrency traders have been negatively impacted by a new tax structure that came into effect late last year, prompting their trade volume to shift toward international platforms – perhaps due to uncertainty regarding regulatory implementation in future years. According to research done by Esya Centre, Indian crypto traders have moved over $3.8 billion worth of their trading volume onto international exchanges since implementation of this new tax structure took place.

The Central Government issued a notification on March 7th 2023 mandating digital assets, fiat currencies, virtual digital assets or more commonly crypto currencies and tokens as trading, safekeeping and related financial services under the Prevention of Money Laundering Act (PMLA). Businesses will need to report suspicious transactions to meet compliance obligations under PMLA which will provide greater transparency and accountability within industry.

The move also brings crypto assets under the definition of money, which allows banks to offer custody services for them. Furthermore, this move will facilitate the establishment of a common taxonomy and standards. As cryptocurrency by definition transcends borders, any laws regarding its regulation or banning require significant international cooperation to prevent regulatory arbitrage – this collaboration becomes all the more necessary as cryptocurrency becomes an accepted global medium of exchange.

Switzerland

Swiss regulations surrounding cryptocurrency and blockchain technology are highly supportive, encouraging innovation while upholding applicable laws. Both the Swiss Federal Government and FINMA recognize its immense potential, remaining open-minded towards new developments. In addition, Switzerland serves as a leading financial center with nearly 100 international double taxation treaties that may help minimise taxes or even avoid them entirely.

Cryptocurrency trading in Switzerland is legal, provided the platforms regulated by FINMA operate as organized trading facilities. However, income derived from cryptocurrency (e.g. mining or staking income) may be taxed depending on how it’s classified; commercial crypto traders can carry forward losses for seven assessment years while capital gains subject to progressive income tax rates; additionally a portion of profit must go towards old-age and survivors’ insurance contributions.

FINMA recently revised its anti-money laundering ordinance in order to intensify monitoring of virtual currency transactions significantly. Under the revised ordinance, financial intermediaries must identify contracting parties if a transaction exceeds a threshold of 1,000 Swiss francs whether as one transaction or multiple similar ones; this measure aims to avoid “smurfing.” As a result, Swiss-based initial coin offerings (ICOs) should reduce in number over time.

El Salvador

President Nayib Bukele of El Salvador made headlines around the globe when he announced his country would become the first to legalize Bitcoin as legal tender. His vision, according to Bukele, was to digitize his economy and reduce reliance on US dollars while simultaneously cutting remittance fees and encouraging investment into El Salvador.

Bukele promised incentives for Salvadorans, such as no income or capital gains taxes and no property tax. Not everyone was pleased by his move. Many are worried about money laundering and other criminal activities and wish the new law were repealed altogether.

Though Bitcoin Law was met with opposition and concerns, it went into effect on September 7th nonetheless. The legislation recognizes Bitcoin as “unrestricted legal tender with liberating power equivalent to national currency”. Furthermore, all economic agents must accept payment in Bitcoin. Excluded are businesses without technology capable of processing its transactions; government training courses will help these transition successfully.

Since its implementation, however, the law has run into numerous hurdles. Chivo (which translates to “goat”) has suffered from several security concerns and crashed numerous times – however these issues are being addressed by implementing a custodial wallet with reduced security risks.