Bitcoin has come a long way since its inception and has cemented itself as a significant player in the global investment landscape. The success of the cryptocurrency as an investment asset has forced the hand of governments around the globe as they look to regulate the asset class. However, governments are divided about how to regulate BTC, and as a result, we have seen disparate regulations across different countries. This inconsistent regulation means that it is subject to different tax treatments worldwide.
To help you keep up with the fast-paced evolution of regulations around bitcoin, we’ve compiled a brief guide that will briefly look at each country’s approach to BTC and if they have any important legislation that could change their approach or outlook towards BTC.
Let’s quickly go over the regulatory status of BTC in important jurisdictions of the globe, starting with countries where it is legal tender. Yes, you read that right, legal tender.
El Salvador’s president Nayib Bukele is particularly bullish on bitcoin, and under him, the tiny Central American nation made history when it became the first country in the world to adopt BTC as legal tender. El Salvador’s move to adopt BTC means the cryptocurrency can be used to settle taxes, public debt, and private debt. El Salvador also does not burden its citizens with a capital gains tax on BTC, with the government also promoting a free wallet called Chivo. Bukele has stated that adopting bitcoin as legal tender would increase financial inclusion for nearly 70% of the population who don’t have a bank account.
However, the country’s pivot towards bitcoin has not been without its setbacks, with the International Monetary Fund (IMF) and the World Bank highly critical of the decision, while it remains to be seen how it could impact relations with its largest trading partner, the United States. Bitcoin’s role as legal tender could also point to an interesting case study and demonstrate its utility as a medium of exchange.
The Central African Republic became the second country after El Salvador to adopt bitcoin as legal tender. The CAR parliament unanimously passed a law favoring the adoption of bitcoin, citing the urgency to solve challenges related to currency and exchange rates. The CAR’s move to adopt bitcoin can also be seen as a way of staving off inflation, which the IMF has forecasted will touch 4% in 2022 thanks to rising food and fuel prices. However, the success of the country’s pivot to bitcoin can only be gauged after a few months.
The United Arab Emirates, particularly Dubai and Abu Dhabi, is widely considered one of the most progressive in the crypto space. Back in 2018, the United Arab Emirates introduced “blockchain strategy 2021,” with the aim of pivoting to the use of blockchain technology for most government transactions. The central bank of the UAE has also collaborated with the Saudi Arabia Central Bank on a joint digital currency and distributed ledger project called Project Aber.
Dubai’s Financial Services Authority (DFSA) announced a regulatory framework for digital assets as part of its 2021-2022 business plan. The framework will look to expand the DFSA’s regulation of digital asset issuers and any associated trading platforms. The framework will also include digital assets such as bitcoin and will draw on a host of best practices from jurisdictions all across the globe and specifically introduce Anti-Money Laundering measures. As bitcoin gains popularity in the Middle East, there are several exchanges that have sprung up, including Rain. Rain offers bank-grade security for its assets, and makes it extremely simple to register and start trading.
At the state level, the United States is considerably far off from a consistent legal approach to bitcoin. However, it is a different story at the Federal level. Several agencies are involved in the regulation of bitcoin, such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC). However, there isn’t much coordination in their efforts, but with bitcoin’s growing importance, regulators have come around to the need for regulatory clarity.
States such as Texas and Wyoming have passed laws that are crypto-friendly, hoping to attract businesses. After China’s intense crackdown on cryptocurrencies, Texas has attracted its fair share of mining activity. The state passed the Texas Virtual Currency Act, which defined bitcoin as a digital representation of value that can be used as a medium of exchange, a unit of account, and a store of value. Wyoming has also approved bitcoin and other cryptocurrencies as a medium of exchange. Meanwhile, other states in the United States have adopted a more stringent approach. However, despite the maze of regulations in different states, bitcoin is not illegal in the United States.
China’s national bank, the People’s Bank of China, banned financial institutions from dealing in bitcoin and other cryptocurrencies back in 2013. Later on, the scope of this ban was expanded to include exchanges and ICOs. Until recently, China was the epicenter of almost all bitcoin mining activity thanks to the abundance of power at low costs. At its peak, it was estimated that 65% of all mining activity was taking place in China.
In 2019, the Chinese government considered banning bitcoin mining, but ultimately deferred it. The ban finally came into effect in 2021, as the crypto space saw a harsh crackdown on bitcoin mining and trading to “protect society from the transfer of individual risks.” As a result of the ban, mining activity in China has dropped to near zero. While the People’s Bank of China has embraced blockchain technology, and is also developing its own Central Bank Digital Currency (CBDC) all mining and other bitcoin/crypto related activities have been banned in China.
While bitcoin and other cryptocurrencies may not be considered legal tender in most countries, regulatory authorities have moved fast to regulate the asset, often treating it as a security. With the increase in the popularity of bitcoin, it is likely we will see authorities draft a clear regulatory framework in most countries.
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