Bitcoin legislation (2022)
The legality of Bitcoin has always been a controversial issue. How does a government approach a decentralized international digital currency that was not intended to be controlled by a central actor or an organization?
There are many levels in the world’s first cryptocurrency that go beyond traditional investments such as mining and trading. Each activity requires its own regulations, since most people find it difficult to learn how Bitcoin works, how it is regulated, and how profits can be taxed.
For example, legal authorities cannot allow unauthorized authorities to manage cryptocurrencies, just as they cannot allow anyone to manage traditional (fiat) currencies. Regulations may differ based simply on how mining works for each network and whether someone is mining personally for themselves or for a professional purpose, even for its annual income levels.
There are so many types of revenue in crypto that the traditional citizen cannot understand. Citizens can own and earn crypto anywhere in the world, so how do governments deal with it?
The laws of Bitcoin in the US as an asset
It has never been illegal to buy and hold Bitcoin in the United States at least not at the federal level.
But the regulatory status of the asset at the national level varies from time to time, with federal parties failing to decide on a unified policy or approach. The United States Securities and Exchange Commission (SEC), the Financial Crimes Enforcement Network (FinCEN), and the Commodity Futures Trading Commission (CFTC) are a few agencies that want to fight Bitcoin.
Securities and exchange commission
The SEC has been working on Bitcoin since 2014, the year it released a warning for investors informing citizens about the risks and risks of Bitcoin. These risks include potential scams and high volatility.
While most cryptocurrencies are considered securities, Bitcoin is not, as there is no beneficiary behind the investment contract. In contrast, the network is autonomous, and Bitcoin is considered by the SEC more as a traditional currency like the United States dollar.
Commodity futures trading committee
The CFTC regards Bitcoin as a commodity similar to gold and other precious metals. Institutional investors who want to get involved with cryptocurrencies can find the CFTC quite useful. The committee also published a plan for 2020-2024 that aims to regulate Bitcoin and other cryptocurrencies for all Americans.
The CFTC also kept its word, following the BitMEX exchange by stating that it failed to set up the platform.
Financial crimes prosecution network
FinCEN established its guidance in 2013, stating that while virtual currency is a medium of exchange, it does not have all the characteristics of a real currency, meaning it cannot be considered legitimate. Stating that as long as a customer is willing to accept it, anyone can use Bitcoin to buy goods and services.
It is also important to mention that those who use cryptocurrencies to buy goods and services are not considered as a money-making business, which means that they fall under different regulatory policies than a traditional business.
Federal reserve
In March 2021, Federal Reserve Chairman Jerome Powell stated that Bitcoin is more of a “speculative asset” closer to gold than a currency. Powell also claimed that Bitcoin is not particularly useful due to its high volatility.
In fact, the Federal Reserve has often stated the risks of other digital assets as well, advising citizens not to invest in them. To the point that Randal K Quarles, chairman of the council, went so far as to say that Bitcoin will never be a revolutionary means of payment.
However, and somewhat ironically, the Federal Reserve is planning its own digital currency, which will likely look like a Stablecoin.
Financial industry regulatory authority
FINRA requires cryptocurrency brokers to be certified to deal with securities such as Bitcoin. If a broker provides the wrong information, FINRA can hire a lawyer to help. However, FINRA is doing its best to educate citizens about the risks of investing in cryptocurrencies by providing informative podcasts and guides on digital assets.
Is Bitcoin legal in China and the rest of the world?
In May 2021, China officially banned financial groups from providing any Bitcoin-related service. While the country had already banned cryptocurrency exchanges, this ban was passed after traditional businesses began to engage in cryptocurrency services, such as banks and other financial institutions. The country cited the volatility of cryptocurrencies as a reason.
However, citizens who already own cryptocurrencies are legally allowed to hold them.
Russia
For a period, Bitcoin remained unregulated in Russia. In 2020, however, the country passed a bill stating that no federal employee or their families can own crypto in any form. The Russian government legalized Bitcoin transactions, although it prevented the use of Bitcoin and other cryptocurrencies in exchange for goods and services.
Some officials have tried to support it, and there is even a group claiming that the Russian government stands in the way of the crypto industry.
Japan
Japan’s government has declared Bitcoin legal tender since 2016 and requires cryptocurrency exchanges to comply with AML and KYC policies. In 2019, however, Japan began using regulations to improve token supply (STOs) and ICO markets.
India
The Reserve Bank of India (RBI) banned local businesses from servicing cryptocurrencies in 2018, stating that they were not legal tender and no entity can have a relationship with them. The ban lasted 2 years until March 2020, so Bitcoin and cryptocurrency trading is now legal.
Europe
Countries are relatively progressive in Europe, although the European Union is still struggling to find a regulation for cryptocurrencies. In 2015, the European Court of Justice (ECJ) ruled that trading is a service. This declaration means that digital assets are not subject to value added tax (VAT).
France
France regulated ICOs and groups providing crypto services in 2019. Since then, the country strictly adheres to all KYC and AML requirements on French exchanges. As of 2021, however, the country is still looking to create a comprehensive regulatory framework. The governor of the French bank Francois Villeroy de Galhau argued that the EU only has a year or two to do so before digital assets affect its economic sovereignty.
Germany
In 2021, the German Federal Financial Supervisory Authority (BaFin) provided Coinbase with an official license required to continue serving customers in the country. BaFin plans to assign the license to many other groups.
United Kingdom
The UK Financial Conduct Authority (FCA) is positive on Bitcoin, even though the asset is not considered legal tender. As of 2020, the asset is not considered property in the UK, which means it is subject to capital gains tax.
However, in 2021, the FCA banned Binance from participating in regulated activities in the UK due to a review of operations.
El Salvador
El Salvador represents the first country in the world to establish Bitcoin as legal tender. As of summer 2021, a law came into force requiring businesses to accept Bitcoin for goods and services. Citizens can also pay for housing with the digital asset, which has no capital gains tax when spent. El Salvador’s president gave Bitcoin worth $30 in the personal wallet of each adult resident who wanted to adopt the new payment method.
Paraguay
Shortly after El Salvador’s legislation, many believed that Paraguay would be next. On July 14, 2021, Paraguay’s congress released a bill regulating the production and commercialization activities of virtual or digital assets. Ideally, there would be three governing parties controlling aspects of cryptocurrency, trying to prevent money laundering.
Panama
Finally, lawmakers in Panama plan to introduce a regulation on Bitcoin. The country will present a bill that will bring clear rules for cryptocurrencies. MP Gabriel Silva claims that this will put Panama at the center of economic technology and business developments.