Legal and illegal status of bitcoin across nations

Bitcoin, a peer-to-peer digital currency launched in 2009, pioneered decentralized finance. While tax authorities, law enforcement, and regulators globally continue to grapple with its regulation, consumers are curious about its legality. Whether Bitcoin usage is permissible depends on the jurisdiction. Explore the varying legal statuses and regulatory frameworks governing Bitcoin across different countries.

Legal status of Bitcoin in various countries

Bitcoin facilitates anonymous transactions globally, posing currency concerns for governments. While some officials oppose its decentralized nature due to control and illicit activity risks, many countries have enacted regulations under anti-money laundering (AML) and counter-terrorism financing (CFT) laws to mitigate these risks.

Several countries prohibit cryptocurrency use, but many others permit it legally.

United States

The U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN) has provided Bitcoin guidance since 2013, defining it as a convertible virtual currency or substitute for real currency. Entities handling Bitcoin, such as exchanges and payment processors, fall under Money Services Business (MSB) regulations, requiring registration and transaction reporting under the Bank Secrecy Act.

In March 2022, an executive order from the White House initiated research on central bank digital currencies and coordinated crypto asset definitions among agencies, addressing consumer protection and cybersecurity concerns. Subsequently, regulations have emerged, including a June 2024 IRS rule standardizing digital asset transaction reporting from custodial platforms to manage tax compliance for tokenized securities and other assets.

Cryptocurrency regulation in the United Kingdom

The United Kingdom has permitted cryptocurrency usage since its inception, leveraging existing policies and accumulated experiences to establish a regulatory framework for cryptoassets.

In 2023, the UK updated the Financial Services and Markets Act to include guidelines for regulating digital assets. This legislation grants the government authority to categorize and oversee various cryptoasset activities, imposing reporting, operational, consumer protection, and safeguard requirements.

The regulated crypto assets in the UK include exchange tokens (cryptocurrencies), asset-referenced tokens, commodity-linked tokens, crypto-backed tokens, algorithmic tokens, governance tokens, fan tokens (sports-related cryptocurrencies), non-fungible tokens, and fiat-backed stablecoins.

Regulation of cryptocurrencies in the European Union

The European Union recognizes Bitcoin and other cryptocurrencies as crypto-assets and permits their use within its member states. However, the Markets in Cryptoassets (MiCA) Regulation imposes regulatory controls on related services and assets. Titles III and IV of MiCA became effective on June 30, 2024, with the remaining titles slated for implementation by December 2024.

MiCA focuses on regulating crypto-assets but does not cover security tokens or non-fungible tokens. Its aim is to prevent fragmentation of financial regulations across the EU and ensure equitable access and safe use of cryptocurrencies for the public.

Canada

Canada adopts a favorable approach towards Bitcoin, akin to the United States. The Canadian Revenue Agency categorizes Bitcoin as a crypto-asset, taxing it based on its usage circumstances. Income from Bitcoin transactions is classified either as business income or capital gains, necessitating appropriate reporting.

Cryptocurrency exchanges in Canada are classified as money service businesses under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This designation mandates registration with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), reporting of suspicious transactions, adherence to compliance plans, and maintenance of specified records.

Australia

Similar to Canada, the Australian Taxation Office views Bitcoin as a financial asset subject to taxation upon specific events. These include trading, exchanging, selling, gifting, converting to fiat currency, or using Bitcoin for purchases, all of which trigger capital gains tax obligations. Individuals are also required to maintain transaction records for tax purposes.

Other countries where Bitcoin is legal

Bitcoin is permitted for transactions in several countries worldwide, each with varying forms of regulatory frameworks. For European Union members, adherence to the MiCA framework dictates legality of crypto-asset services. Countries where Bitcoin is legally accepted include France, Denmark, Germany, Japan, Switzerland, Spain, Bahamas, and Austria.

Countries prohibiting Bitcoin usage

Bitcoin faces resistance in various countries due to its volatility and decentralized nature, seen as potential threats to existing monetary systems and as facilitators of illicit activities such as drug trafficking and terrorism financing. Several nations have completely banned digital currencies, while others have restricted access to banking and financial system support essential for trading and using Bitcoin.

Countries where Bitcoin is generally prohibited include China, Pakistan, Saudi Arabia, Tunisia, and Bolivia.