This research was sponsored by Luno Global, a platform that allows users to buy, save and manage cryptocurrencies.
Back in 2009, just as Bitcoin was beginning, there was absolutely no consideration to its legal status in any country in the world.
This was because no one in a position of power to do anything about it was aware of it and, if even they had been, they would have considered it no more than a fanciful, experimental idea perpetrated by liberalist fanatics.
Fast forward a few years, and creating regulatory clarity for Bitcoin (and cryptocurrency in general) is now on the agenda in almost every jurisdiction on the planet, and for good reason; it can no longer be ignored.
Its use, development and adoption continues to grow on a daily basis in a global industry that is moving as fast, if not faster, than the development of the internet itself some thirty years prior.
However, the wheels of government and legislation simply weren’t designed to move that quickly. As a result, there are gaps in definitions, legal tests that don’t apply as neatly as they should, lack of clarity due to the blurred lines between “currency” and “asset,” and all manner of issues concerning jurisdiction, identification and transfers.
But then, what else would one expect when the world is suddenly having to deal with something that has — literally — never existed before at any point in history?
Like the internet itself, legislation will evolve over time and will almost certainly look radically different from how it does today. For some, open-armed models like the one adopted by El Salvador are the future. For others, total bans like the one imposed by China are the way forward. Is either right? Or is the balance somewhere in the middle?
Only time will tell, of course, but for now, it’s interesting to see how global legislation has progressed so far.
The Library Of Congress Law Library Report
It may seem like an unexpected source at first, but the Library of Congress has been keeping a close eye on legislative models involving cryptocurrency for some time.
Their most recent update was in November 2021 and, although it is only three months old at the time of writing this, there have been some significant developments since then that we will cover later on.
The report focuses on two main areas of regulation.
First, there is the legal status of cryptocurrencies, in this case meaning whether a country bans them and, if it does, whether they are banned explicitly or implicitly.
An implicit ban, for example, could be defined as prohibiting banks and other financial institutions from dealing in cryptocurrencies or offering services to individuals or businesses dealing in them, or simply banning cryptocurrency exchanges.
The second area of consideration is the regulatory framework surrounding cryptocurrencies, especially involving the application of tax laws and anti-money laundering (AML) regulations.
Regulation is often considered an uninteresting topic, but its impact is potentially very significant. Many institutions, for example, have publicly stated that although they are interested in investing client money into certain crypto assets, they feel they are unable to do so until there is real clarity on what they can — and can’t — do.
Interestingly, the exact detail of that legislation seems less important than having the clarity to act on it.
Clarity, therefore, is likely to be a significant factor in Bitcoin's next wave of price discovery.
The opening summary sets the tone
The previous report had been completed in 2018 and, perhaps unsurprisingly, it summarized that a significant number of territories had changed the legal status of cryptocurrency within their borders by 2021.
In 2018, only 23 jurisdictions had either absolute or implicit bans, whereas 2021 saw that number rise by 121% to 51.
It would be easy to conclude that “governments are moving to ban Bitcoin” in ever larger numbers, but the reality is more that governments are finally making a decision one way or another after sitting on the fence for some time.
It’s also worth noting that positions can — and do — change and we will probably see a great deal of this over the next few years. Therefore, it should also be remembered that this report is no more than a “snapshot” of where we are today.
The other statistic that stands out is the number of jurisdictions that now have some form of taxation law or AML clarity in place, up from 33 in 2018 to 103 in 2021, an increase of 212%.
Generally speaking, these jurisdictions can be considered either friendly to cryptocurrencies or at least having a framework of some sort within which organizations and individuals can work.
On the whole, the number of jurisdictions that have made a decision “either way” now totals 154, up from 56 only three years previously.
Absolute bans
According to the report, only nine jurisdictions currently have absolute bans (previously eight in 2018) in place in terms of cryptocurrency. They are Algeria, Bangladesh, China, Egypt, Iraq, Morocco, Nepal, Qatar and Tunisia. China, of course, was the recent addition.
Those who follow censorship trends may have quickly spotted that this list is also quite close to the list of the few countries on earth that heavily control or outright ban general access to the internet, especially China and Qatar. This is no coincidence, and it’s worth mentioning that some of those countries also have an implied ban on Bitcoin, as we’ll see later.
No government has ever successfully stopped its citizens from actually accessing Bitcoin, since the network always remains available and useable in one form or another. Let’s not forget that it is, first and foremost, a peer- to-peer network that can operate quite happily without the permission of any third party.
These bans are actually in place via threat of harsh penalties for end users or organizations that facilitate them, such as banks or exchanges.
In fact, the only surefire way to physically stop your citizens doing so is to switch off all communication with the outside world via internet, satellite, mobile and even radio waves. It’s simply not a practical route to take, and it’s not beyond the realm of possibility that these nations will be forced to reconsider their position in due course.
Each country will have its own agenda for doing this. I have written about China’s motives before, which are more concerned with global dominance and centralized control, but other nations may be more concerned with capital flight or the perceived undermining of their own currencies.
‘Implied’ bans
Many jurisdictions have banned Bitcoin by stealth. In these areas, Bitcoin’s use isn’t necessarily illegal, but central powers have simply made it very difficult to use it legally, by, for example, switching off any access points to the traditional financial system that lie within their own jurisdictions.
There are currently 42 jurisdictions that have done this as of November 2021. They are Bahrain, Benin, Bolivia, Burkina Faso, Burundi, Cameroon, Central African Republic, Chad, Côte d’Ivoire, Democratic Republic of the Congo, Ecuador, Gabon, Georgia, Guyana, Indonesia, Jordan, Kazakhstan, Kuwait, Lebanon, Lesotho, Libya, Macao, Maldives, Mali, Moldova, Namibia, Niger, Nigeria, Oman, Pakistan, Palau, Republic of the Congo, Saudi Arabia, Senegal, Tajikistan, Tanzania, Togo, Turkey, Turkmenistan, United Arab Emirates, Vietnam and Zimbabwe.
There are a wide range of letters, official statements, decrees and laws of varying strengths and with different penalties across these regions, but the objective is each case is ultimately the same — to make Bitcoin hard to use without actually banning it outright.
However, as the nations that have tried to ban completely have already found, their efforts are rarely successful. In some cases, for example Nigeria, the act of banning financial institutions from facilitating crypto payments has actually driven more people to digital currencies and moved all trading underground via peer-to-peer transfers.
Some countries, such as Turkey, have only banned cryptocurrencies for purchases rather than trading, meaning that there is a thriving — and very visible — Bitcoin community existing at the edge of the law.
However, the most startling revelation is that almost all territories listed above show solid peer-to-peer trading volume, according to LocalBitcoins, Paxful or Biqsue.
As mentioned before, stopping your citizens from using Bitcoin is not easy.
Bitcoin is ‘Go’
For the remaining 103 jurisdictions, Bitcoin is either fully legal and classed as a currency, as in El Salvador, or is legal to use, but classed as an asset, such as in the U.K. In reality, this latter classification is true for the vast majority of these regions.
These distinctions are important because tax implications are very different. Making a transaction with currency is never taxable in and of itself, but making a transaction with an asset creates a taxable event that must be declared, accounted for and paid.
This means that even in jurisdictions where Bitcoin is legal, using it is still complicated to understand and awkward to account for. This leads to a natural temptation of all users and investors to keep these transactions quiet or avoid using it where possible, neither of which is a good long-term strategy.
Notable updates since report publication
Of course, this is an extremely fluid situation, just as it was when the internet started challenging boundaries 30 years ago.
Several countries have announced (through multiple news reports) that they intend to move toward legal tender adoption including Panama, Paraguay and Guatemala and have various plans to do so.
Tonga — a tiny nation not even mentioned in the report — aims to sign this into law by September 2022.
Just a few days ago, Brazil, one of the world's largest economies, announced its own bill to create a solid regulatory framework.
Some of the recent announcements have also attracted a great deal of attention.
Just a few days after the Russian Central Bank wanted to outlaw Bitcoin and all related activities, the Kremlin announced the exact opposite, proposing a draft bill that was released Feb. 18. While not as far-reaching as many expected and containing unusual conditions to access it, it nevertheless provides legal clarity regarding what can be done within the borders of the country.
Interestingly, just a day or so after that announcement, Ukraine announced that the country’s lawmakers had approved legislation providing clarity regarding crypto regulations. The timing was unavoidably interesting, although in Ukraine's case it should be noted that the bill had been in development since September 2021.
The future
Governments are actually incentivized to find a clear way forward for a number of reasons.
Apart from the fact that most jurisdictions have now realized Bitcoin is not going away, and they risk being left behind if their neighbors find a better way to work with it than they do, there are tax and investment considerations.
Any lack of definition means that all transactions take place in a gray area of law by default, and tax accounting is often hastily shoehorned into existing legislation, allowing leakage of possible income for the respective treasuries.
At the same time, institutions with enormous funds at their disposal have shown an interest in investing in the class on a large scale, and anyone who can offer a clear and solid framework to do that, combined with a stable and secure government, will hold a competitive advantage on the global stage.
The expectation is, therefore, that more and more jurisdictions will allow investment and transactions in Bitcoin under a clear set of guidelines, and still more will take that step further of legalizing it completely over time.
Those countries who have opposed it are more likely to find themselves ultimately playing catch-up, and they will either continue to alienate themselves further, perhaps by developing an alternative such as a state controlled central bank digital currency (CBDC), or they will finally capitulate and work with their neighbors going forward.
One thing is absolutely certain; where we are now is not where we’ll end up ultimately.
We’ll have many, many iterations over many, many years before we trend toward a common global framework.
And I suspect there will be any number of wrong turns on the way.
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Disclosure: The author of this opinion piece has been heavily involved with bitcoin for several years and holds a substantial cryptocurrency portfolio, including bitcoin. He also has a mining operation running the SHA-256 algorithm based in Siberia and is a published author on the subject of promoting the understanding of cryptocurrency. Jason is an analyst at Quantum Economics and consultant to Luno.
Disclaimer: This content is for educational purposes only. It does not constitute trading advice. Past performance does not indicate future results. Do not invest more than you can afford to lose. The author of this article may hold assets mentioned in the piece.
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It was an article to read, considering several aspects... Thank you!
Still definitely very early in terms of regulatory development. The toughest part at the most is just keeping track of how each government is handling it - talk about confusing!