Lesson 2: Mass adoption of cryptoassets
The legal environment for cryptocurrencies is diverse and uneven. It goes country by country. While many are trialling state-owned digital currencies, others are banning their mining, and some have made bitcoin legal tender, while others are treating it as a foreign currency. Switzerland continues to take steps in favour of cryptoassets.
For years now, attempts have been made to implement internationally coordinated regulation of blockchain-based assets, including cryptocurrencies. However, the landscape and its actual penetration remains very uneven.
Crypto.com, a cryptocurrency trading platform with upwards of 80 million users, claims that in 2022 the number of holders of digital currencies reached 425 million worldwide, 39% up on 2021. Of these, 52% own BTC (bitcoin) and 20% ETH (ethereum). According to the Geography of Cryptocurrency Report by Chainalysis, which measures the adoption of cryptocurrencies in 146 countries, emerging markets are dominating the adoption rate. Of the 20 top-ranked countries, ten are in the list of low-middle income and low economic development countries, most notably including Vietnam, Ukraine, the Philippines and India.
In the US and Canada, cryptocurrencies are not considered legal tender, but governments are seeking to regulate their use in commercial activities and are working on CBDC (central bank digital currencies) projects. In some Latin American countries cryptocurrencies were banned over concerns regarding tax evasion and money laundering. In others they are legal tender.
- US: cryptoassets are treated for tax purposes as property.
- Canada: cryptocurrencies can be used to purchase goods and services online or in stores that accept them.
- Mexico: cryptocurrencies cannot be offered or traded by Mexican financial institutions.
- Brazil: they can be used privately as an alternative means of payment, they are classified as movable assets. A CBDC pilot trial, the digital real, is underway.
- Argentina: these are intangible assets subject to taxation.
- El Salvador: bitcoin has been legal tender in the country since 2021.
- Colombia, Venezuela and Bolivia: cryptocurrencies are illegal.
The EU has rolled out new standards for the regulation of cryptocurrencies under the name Markets in Crypto-assets (MiCA). These assets are legal and each state has autonomy regarding taxation; and buying and selling is VAT free within the EU. There are differences in regulation both in the eurozone and in other states.
- Germany: cryptocurrencies can be bought or exchanged only with the authorisation of the Federal Financial Supervisory Authority (BaFin). Gains over €600 are subject to tax.
- France: digital asset exchanges are not taxed, while the sale in exchange for legal currency, goods or services is taxed.
- Portugal: profits from the purchase and sale of cryptocurrencies are not taxed, while companies providing related services are taxed on capital gains.
- Spain: in the absence of specific regulation, cryptocurrencies are assimilated to securities, in the case of public offerings, or to movable property. Above a certain amount established by each Autonomous Region, they must be declared.
- Italy: treats cryptocurrencies as foreign currency. The exchange margin is exempt from VAT.
- United Kingdom: you can buy and sell cryptocurrencies. Taxes vary between individuals and companies. The UK has the largest gross trading volume in Europe and the sixth largest in the world.
- Switzerland: one of the countries that has made most progress in safe and transparent regulation. The Federal Government has defined virtual currencies as a digital representation of a value that can be traded on the internet. Financial service providers operating with cryptocurrencies must comply with the same anti-money laundering rules as traditional banks. Cryptocurrencies are taxable and gains from their purchase and sale are considered capital income.
- Ukraine: in 2022, the government passed new measures to regulate and thus legalise exchanges and cryptocurrencies, not least as an attempt to free itself from possible foreign monetary influences. The country experienced a steady increase in cryptocurrency transfers from the start of the war in February 2022 until June 2022, making it the world’s third largest adopter of cryptocurrencies.
- Russia: In 2022, a bill was tabled to ban cryptocurrency payments for goods and services, setting a limit on the amount of roubles a person can invest in cryptocurrencies
🌍 Africa and the Middle East
South Africa is the country closest to regulating cryptocurrencies, while in Morocco, Algeria and Egypt they are illegal. The United Arab Emirates and Saudi Arabia have intervened in favour of the diffusion of cryptoassets.
Many countries, including Japan, Korea, Indonesia, Singapore, Thailand and Malaysia, have introduced state licensing for cryptocurrency exchanges and are considering CBDC projects.
- Vietnam: in 2020, 21% of Vietnamese consumers reported that they used or owned cryptocurrencies, and in 2022, the Asian country was, for the second year in a row, the leader in global adoption, ahead of the Philippines. The State Bank of Vietnam does not yet recognise cryptocurrencies as a legal method of payment, but ongoing legislative initiatives are pointing in that direction.
- China: cryptocurrency trading and mining has been banned. Meanwhile, the digital currency created by China’s central bank is testing the use of the virtual yuan in several provinces.
- India: cryptocurrencies are unregulated pending a draft bill and the creation of the digital rupee.
- Japan: they are considered a property value and not legal tender.
- South Korea: cryptographic service providers must register and comply with anti-money laundering requirements by acquiring a certificate issued by the Korea Internet & Security Agency (KISA).
Cryptocurrencies are considered property, but may be used as a unit of exchange for goods and services, and other forms of money.