Bitcoin Laws: What You Need to Know

As the first and biggest crypto blockchain, Bitcoin from Bitcoin ATM has grown since its inception in 2009 to become a respected store of value and medium of exchange. Now finding its way into the hands of mainstream investors and even included in some pension funds, Bitcoin’s legal status is slowly maturing.

Nevertheless, Bitcoin laws are still largely misunderstood and vary from country to country, and sometimes even state to state.

To make things clearer below is a primer on the current state of Bitcoin in the eyes of the law.

Bitcoin’s legal status

In most developed countries Bitcoin ownership and trading are legal.

Confusion over the legal status of Bitcoin stems mostly from the fact it existed for most of its existence in a grey area of finance. Neither illegal nor legal, it wasn’t until 2017, for example, that Bitcoin was officially legalized in Australia.

Ambiguity still plagues the space, however. While crypto has been recognized as property in the UK since 2020, the country still has no laws or official regulations regarding its trading. In the US, too, Bitcoin is not illegal, but government agencies are yet to truly pin down the laws and regulations regarding it.

As it stands, countries tend to lump Bitcoin in with other forms of financial assets, regarded as property in terms of tax. While users tend to use Bitcoin as a currency, currently only El Salvador recognizes it as a legal tender. Other countries see Bitcoin as a challenge to stability, with China, for example, banning it outright.

Bitcoin Legal

  • Australia
  • United Kingdom
  • United States
  • Canada
  • France
  • Finland
  • Germany
  • Japan

Bitcoin Illegal

  • Pakistan
  • Vietnam
  • Bangladesh
  • Saudi Arabia
  • Bolivia
  • India (not illegal but heavily restricted)

Regulations and illicit activity

With ambiguity surrounding Bitcoin’s legal status, government agencies tend to regulate the exchanges where cryptocurrencies are bought and sold, instead of the blockchains themselves.

Part of the reason policymakers are so keen to regulate Bitcoin and other cryptocurrencies in some form is because the space is used heavily for illicit activities such as money laundering.

Regulating blockchains themselves is an almost impossible task, so regulators instead choose to target crypto exchanges. These off and on-ramps, allow fiat and crypto to be converted and prove an easier regulation target. Exchanges must keep records, verify identities, and comply with reporting requirements.

For your average user though, legal Bitcoin use simply means filling out a know-your-customer (KYC) form which will allow your identity to be confirmed for security purposes and filing taxes correctly.

Tax responsibilities

Considered property, rather than currency, by most countries, Bitcoin is taxed the same as assets such as property that can appreciate in value. This form of tax is called a capital gain tax (CGT) and requires owners to pay a percentage of profits made since the coin’s initial purchase.

The rate of CGT differs from country to country. Countries such as the UK have an allowance before you are required to pay CGT, and others, such as the US, have different rates depending on the length of time the asset was held.

While Bitcoin laws dictate CGT should be paid for appreciations in value, those who trade crypto by profession are required to consider gains as income. Traders and businesses that trade crypto commercially should treat profits as a source of income, rather than a capital gain.

Bottom line

With Bitcoin’s speedy adoption showing no signs of slowing down, laws and regulations are now beginning to be developed. In the US, Australia, UK, Japan and elsewhere, regulatory framework is being put together to help establish a firmer legal ground for Bitcoin and other cryptocurrencies. While some in the space are put off by legal interference, traditional firms and investors are waiting for clearer laws before getting involved.

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