Tuesday, July 23, 2024

Regulatory Controls Applied To The Crypto Market In Europe

The growth of the crypto market in recent years, mainly of Bitcoin (BTC), has aroused the enthusiasm of small and large investments, while putting the financial system and the regulations that govern it in check . Dozens of countries have tried to regulate the market for years, but the bureaucratic and legal process that this demands, together with the pressure from the actors involved, does not make it a quick task.

In Europe , countries have faced different processes to control the market. The “individual” advances of each government in this matter have been known to be emergency responses to the growing interest of the population , who saw in digital assets the trust and profitability that is no longer observed in traditional currencies .

At the regional level, regulatory policies have been slower. The European Union (EU) has only just set its eye on Bitcoin and altcoins in recent years, and has made slow but steady progress. In this sense, specific regulations applicable to crypto investors and exchanges have been drawn up , mainly aimed at protecting the consumer and guaranteeing the transparency of operations .

The Fifth Directive and the Crypto Assets Market
A recent report from Coinshares highlights policies pushed from the EU to partially control the emerging market. On January 10, 2020, Europe saw the “ Fifth Directive against Money Laundering and Financing of Terrorism ”, popularly known as 5AMDL , come into force .

Regional legislation aims to guarantee the global security and integrity of the financial system . Based on these regulations, exchanges are subject to the same obligations as conventional financial institutions: comply with the AML (against money laundering), CFT (against the financing of terrorist associations) and KYC (confidential system of personal data for “Meet customers”).

Eight months later, the Crypto Assets Market (MiCA), an organism of the European Commission, was born. It is a project to develop a regulatory framework in a consensual manner with issuers , suppliers and supervisory entities of digital assets .

The objective is to advance in a linear regional regulation, in order to give each government more peace of mind and more predictability to investors. At the moment, the crypto trade of each country is different.

It is the country in Europe with the highest rate of crypto adoption : 14% of investors own cryptocurrencies, and there are 102 BTC ATMs in the country . In addition, digital assets are not considered as money itself, but as assets, for which they are subject to wealth taxes , but are exempt from income taxes.

The adoption of BTC in the country has been staggered ; the canton of Zug in Switzerland (Crypto Valley) both cryptocurrencies began to be accepted as payment of administrative costs in 2017, while in the canton of Ticino they did so a year later. In 2019 , the Swiss Financial Market Supervisory Authority (FINMA) made official a document in which it outlined certain parameters to comply with regarding the fight against money laundering.

Germany stands out within the European crypto ecosystem for its high levels of adoption . According to data from GlobalWebIndex, in 2019 87% of the country’s adults already knew about cryptocurrencies, and 18% had added them to their investment portfolio . Throughout the country there are more than 50 BTC ATMs.

On a regulatory level, the German government was also one of the first to pay attention to digital assets . In 2011, just two years after Bitcoin was created, the Federal Financial Supervisory Authority (BaFin) noted that cryptocurrency was a “unit of account.”

Although it was not recognized as a legal currency at the height of the euro or the dollar, its use was allowed for payments. Since 2018, that positive outlook spread and the tax exemption for the use and mining of cryptocurrencies was determined .

The UK stands out as the region with the most BTC ATMs.

Rest of europe
The Coinshare study lists other countries with lower levels of crypto adoption, but that have pushed through various regulations that earned it a place on the regional stage. The Netherlands and Austria , for example, have respectively 11% and 12% of their adult population as crypto investors . While no country accepts BTC as legal tender, the Austrian government determined that it considers it an “intangible commodity” for tax purposes.

In tax matters, Austria frees the exchange of assets and crypto mining in the country from tax burdens , but it does subject it to taxes if they are used as a payment method. The Netherlands has not yet defined a position on that point – nor has it implemented any type of tax – but its regular tax legislation could apply to individual or institutional investors operating in the market.

While Sweden and Italy have somewhat lower adoption levels : 6% and 5% , respectively. In the first, cryptocurrencies are considered a means of payment and an investment tool, while in the second they are appreciated as a digital representation of value.

Regarding taxes , Sweden does not apply them to the sale and mining of crypto, but to the purchase of digital assets as an investment . In Italy all operations are tax-free, but taxes are applied to the profits obtained . At this point, it should be noted that Luxembourg stands out as the only country that applies regular tax laws for all commerce .

While the UK left the EU this year, the Financial Conduct Authority (FCA) move towards an individual regulatory framework will undoubtedly influence regional policies. In addition, by not contemplating too many details about the financial relations that it will continue to maintain with the bloc in its exit agreement, it is not clear whether future measures implemented by the EU will govern the nation .

Approximately 1.8 million British adults (3.8% of the population) own cryptocurrencies . Three-quarters of that number have small investments of less than a thousand pounds. The United Kingdom also stands out as the region with the most crypto ATMs on the continent, with 247.

On January 6 of this year, the FCA formalized the ban on the sale , distribution and even the promotion of some financial instruments focused on cryptocurrencies . The decision aroused strong controversy in the country, as the agency decided to move forward with the rule unilaterally despite the fact that 97% of investors rejected it .

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