Many European countries have adopted cryptocurrencies, in particular Bitcoin. Estonia is one of the leaders in Europe in terms of fintech and favorable conditions for the crypto sector in general. However, now there are new laws for the sector, which will affect the situation in the country.
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The Crypto sector in Europe
According to the Crypto Event, cryptocurrencies are legal throughout the European Union, but specific regulatory and taxation standards vary widely. In tax matters, most EU countries are guided by the 2015 decision of the European Court of Justice, according to which the exchange of cryptocurrencies should be exempt from value added tax (VAT) and the holder of coins should pay capital gains tax.
Gradually, all countries adapt their crypto regulatory standards to the FATF Recommendations of June 21st, 2019. According to these recommendations, crypto websites should start complying with the strict KYC/AML standards, as well as exchanging user data with each other and with the regulator.
In January 2020, the Fifth EU Anti-Money Laundering Directive (5 AMLD) came into force, requiring the mandatory registration of crypto currency exchanges with financial regulators and the transfer of customer portfolio addresses to them. In general, the EU is gradually tightening regulation of the crypto-currency market.
The situation of the crypto sector in Estonia
Estonia is also among the countries with the largest number of people interested in the crypto sector. The authorities consider cryptocurrencies as digital goods that can be used as a payment instrument, but are not legal tender. As in other European countries, in Estonia, exchange cryptos must receive two licenses: one from a virtual currency exchange operator and one from a virtual currency wallet operator.
In January 2020, the country’s authorities announced that virtual currency exchange service providers will be treated in the same way as financial institutions in accordance with the Estonian Anti-Money Laundering and Terrorist Financing Act.
However, the recent implementation of the 5 AMLD will also have repercussions in Estonia. Previously obtained licenses will also have to comply with the new rules and this will be very damaging to exchange crypto. It appears that Estonia has no choice but to meet the requirements.
Cryptocurrencies should be considered as a unique alternative asset class
Cryptocurrencies are universal. They can act as money in transfers, as security or product for an investor, or as simple code for a programmer.
The experience of regulators around the world and in Estonia shows that cryptocurrencies are difficult to attribute to any existing asset class. The transfer of traditional regulatory standards to cryptocurrencies does not work well. More and more regulators are tending towards the obvious idea that these currencies should be considered as a unique alternative asset class, different from all others, with their advantages, risks and legal basis.
In addition, since cryptocurrencies are very different from each other – just think of decentralized and centralized projects – it is very likely that they should be divided into different categories.
Ultimately, the way cryptocurrencies are classified largely determines the future of the market. The crypto sector in Estonia will be forced to adapt to innovations, or the country will risk having its licenses revoked.
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First published in the Cryptonomist, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.
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