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Cryptocurrency regulation in Europe: where things stand

By Connor Freitas

Cryptocurrency regulation in Europe is largely decided by the EU – but delve deeper and you find local differences.

Cryptocurrency regulation in Europe is enough to make your head spin. Individual countries on the continent naturally have differing attitudes to digital assets, but this is muddied by how many nations legislate collectively under the European Union. Here, we’re going to explore crypto regulation across the continent – including key points of difference, which nations are friendliest and what future regulation could look like.

Is cryptocurrency legal in Europe?

In a nutshell… yes. It’s possible to purchase the likes of Bitcoin and Ethereum on exchanges throughout Europe. This isn’t to say that cryptocurrency law doesn’t exist, though. Anti-money laundering measures have been ramped up in 2020 – a form of regulation that aims to stop consumers from being able to buy digital assets anonymously.

The crypto regulation, known as 5AMLD, means that an exchange based in Spain would have to formally register with the regulator of that country. Companies are also required to store information about how their clients have funded their purchases – a measure designed to stop cryptocurrencies being used to finance terrorism or launder the gains of criminal activity. It’s prompted several exchanges to announce they are moving their operations outside the EU.

There are differing views in the debate over the legality of cryptocurrency and whether regulatory bodies should do more to support this burgeoning industry. Indeed, officials in top institutions are at odds. One former head of the European Central Bank has repeatedly expressed scepticism over whether Bitcoin has value or can even be regarded as a currency – something that doesn’t bode well for future crypto regulation. Although the new ECB president Christine Lagarde isn’t going to be encouraging everyone to buy BTC and "HODL, HODL, HODL", she has publicly admitted cryptocurrencies could help make payments faster and cheaper – warning that the EU should be “ahead of the curve” so it isn’t left behind by the digital asset revolution.

On the back of this, it’s interesting to look at how the European Union at large reacted when Facebook announced plans for its Libra stablecoin. Primarily, it was one of panic – crypto regulation has been struggling to keep up with innovations in this sector. In December 2019, finance ministers from across the trading bloc agreed that no such project could launch “until the legal, regulatory and oversight challenges and risks have been adequately identified and addressed”. This, in part, is due to concerns that Libra and others like it could create financial instability by undermining the euro, not to mention central banks.

Work has now begun to develop cryptocurrency regulation, and the European Commission is said to be in close contact with other major economies worldwide. Interestingly, this has coincided with the ECB beginning to look aggressively into launching its own digital currency – a so-called “Eurocoin” – which could challenge stablecoins from private companies. It seems crypto regulation is quite a cut-throat business.

One issue that has been identified with Europe’s approach to cryptocurrency regulation is how digital assets are still so new. It’s difficult to write new laws because politicians and economists don’t know what needs to be covered, yet it’s too early to disrupt existing laws by adding amendments. Because of this, some nations have been advocating so-called “regulatory sandboxes”. This is an environment where crypto start-ups are able to offer their products and services to a limited subset of the population without being governed by current laws (however, there are some strict conditions attached to this). The benefits are clear: fintech companies get to show how their platforms can benefit the public, and regulators can see how laws will need to change so the economy can flourish.

Bitcoin legal status by country

Let’s wrap up with a whistle-stop tour of whether Bitcoin is legal or illegal in some of Europe’s biggest countries – as well as the added crypto regulations that are currently in force across some of its major economies.

Germany is arguably one of the most forward-thinking EU countries when it comes to cryptocurrency regulation, which is also reassuring given how it is the biggest member of the trading bloc in terms of gross domestic product. German banks have recently been allowed to start managing digital assets on behalf of their clients – a rule that could prove crucial for injecting institutional capital into the industry.

Bitcoin regulation is also fairly advanced in France, where it’s a little easier to make cryptocurrency payments in mainstream shops than in other European countries. Last year there was plenty of excitement surrounding an announcement made at Paris Retail Week that the likes of BTC would be accepted as a payment method at dozens of major retailers, including the sportswear giant Decathlon and the perfume brand Sephora.

Over in Spain, the issue of Bitcoin legality isn’t the main concern. This is a country that has extensive protections for consumers and investors alike – and given their decentralised nature, it is often difficult for cryptocurrencies to offer the rights enjoyed when other financial instruments are being used. Do not expect BTC to become legal tender in Spain any time soon: cryptocurrency regulation here is crystal clear that only euro coins and banknotes enjoy this status.

As you can find out in our deep dive on crypto regulation in the UK, there’s confusion over exactly what – and who – is in charge of overseeing digital assets. One thing that we do know is that the Financial Conduct Authority has a role in holding exchanges to account when it comes to compliance with anti-money laundering and preventing the financing of terrorism. There’s little good news for consumers who have been treated badly by an exchange. Although Bitcoin can be purchased with relative ease, the advice given to Britons is to avoid doing so.

Finally, a tone of optimism for those of you who want to see cryptocurrency regulation that protects consumers while allowing the industry to build momentum. Luxembourg was the first country in Europe to begin licensing exchanges – a stance that has encouraged crypto businesses to set up shop there. This falls under the country’s Commission de Surveillance du Secteur Financier. The body has also won plaudits for alerting the public when it finds unregistered crypto companies operating in its jurisdiction – flagging firms that might be attempting to scam unsuspecting customers.

FURTHER READING: Cryptocurrency regulation in Asia: where things stand right now

FURTHER READING: Should you invest in blockchain? Some important tips to bear in mind

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