Bitcoin Legal Guide

One concern that prevents many people from buying and investing in Bitcoin is the legality of the currency.

And that’s certainly a factor you’ll need to consider, depending on where you live.

That’s because unlike standard currencies, which are regulated by a government’s central bank, Bitcoin isn’t controlled by any centralized organization.

This means that once it began to gain in popularity, governments, tax authorities, and law enforcement agencies had to play catch-up to figure out how to regulate it.

And as those laws and regulations develop, Bitcoin’s legal status continues to change within different countries.

So before you invest in Bitcoin — and as you continue to make transactions — it’s important to stay up-to-date on the currency’s legal status where you are, so that you can avoid running into any issues in the future.

Bitcoin regulations by country

Today, Bitcoin’s regulations vary drastically by country. Some accept it, and others have outright banned it, while some are considered “hostile” and others have yet to even acknowledge its existence.

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It’s also important to note that today, many countries are still establishing their stances on digital currency.

So if you’re involved in trading Bitcoin, it’s essential to keep an eye on how these regulations develop and change.

Countries in which Bitcoin is legal

The United States and Canada, the majority of eastern Europe, Australia, Colombia, Brazil, Argentina, South Africa, Turkey, Iran and parts of Asia have explicitly stated that it is legal to buy and trade Bitcoin.

If you live in any of these countries, you should have no issues with your investments as long as you follow any regulations they’ve established.

Countries in which Bitcoin has been outright banned

In Bolivia, Ecuador, China, Nepal, Morocco, and the Dominican Republic, the government has officially outlawed Bitcoin.

While the penalties vary by country, almost all of them involve jail time — meaning that if you’re located in one of these countries, you’ll want to avoid Bitcoin altogether.

Countries in which Bitcoin is considered “contentious”

Some countries, including Russia, India, Thailand, Kenya, Jordan, and Vietnam are still in the process of establishing regulations regarding Bitcoin. In most cases, however, these governments are expected to establish the currency as illegal within the next few years.

In India, for example, The Reserve Bank of India has already banned banks from accepting transfers from Bitcoin wallets, essentially rendering those funds useless.

So if you’re located in one of these countries, trading Bitcoin is not yet illegal — but may not be a wise investment choice given its uncertain future.

Countries in which there is no official stance on Bitcoin

In many African countries, as well as parts of South America and Asia, the government has yet to acknowledge Bitcoin in any way.

This makes it nearly impossible to predict how regulations regarding the currency will develop in the future.

So if you’re located in any of these countries, you won’t be breaking any laws or regulations if you invest now — but it’s especially important for you to keep an eye on any news regarding Bitcoin so that you can make informed decisions about your investments.

Why authorities are concerned about Bitcoin

So — why is this an issue at all?

In general, these concerns stem from two main factors: the fact that it’s decentralized, and the potential for fraud.

It should come as no surprise that the authorities that regulate currency would be concerned about a form of currency that cannot be regulated. But for most investors, Bitcoin’s decentralization is considered a positive aspect.

The concerns over fraud, then, are primarily the result of cases in which large exchanges suddenly collapsed — the most infamous of which being Mt. Gox.

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When the exchange filed for bankruptcy, it claimed that over $460 million was stolen by hackers. Beyond that, another $27.4 million went missing from its users’ bank accounts.

As a result, many investors today take additional security measures with their cryptocurrency accounts, including storing their Bitcoin offline.

U.S. regulators’ stances on Bitcoin

Within the United States, several organizations have released statements or expressed concerns regarding Bitcoin.

FinCEN

FinCEN, or Financial Crimes Enforcement Network, is a bureau of the U.S. Department of the Treasury.

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Their mission is to “safeguard the financial system from illicit use and combat money laundering.”

The organization classifies Bitcoin as “virtual currency” and states that because trading it is not considered “money transmission services,” it is not subject to FinCEN’s registration, reporting, or recordkeeping regulations.

That being said, the platforms that facilitate the exchange of Bitcoins do have to follow their regulations. And in 2017, they imposed their first penalty on a Bitcoin exchange, fining the platform $110 million and arresting one of the operators.

SEC

The Securities and Exchange Commission, or SEC, first published an Investor Alert in 2014 to “make investors aware of the potential risks of investments involving Bitcoin and other forms of virtual currency.”

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In this alert, they classified digital currency as one of the top ten threats to investors and warned that because it operates without a central authority, it involves a heightened risk of fraud.

Then, in 2017, they released a statement on cryptocurrencies and initial coin offerings, again warning investors that “invested funds many quickly travel overseas without your knowledge. As a result, risks can be amplified.”

But near the end of this statement, the SEC also states that “developments in fintech will help facilitate capital formation and provide promising investment opportunities.”

In short, the organization encourages buyers to exercise caution — but acknowledges Bitcoin and other digital currencies as potentially promising investments.

IRS

The IRS first issued a notice regarding virtual currency in 2014. In this statement, they acknowledge that while certain countries treat Bitcoin and other digital currencies as “real” currency, it does not have legal tender status.

Instead, it taxes Bitcoin as property. And while many Bitcoin investors have allegedly neglected to report their investments over the past few years, the IRS persuaded a federal judge to require Coinbase, a popular exchange platform, to turn over records in 2017.

As a result, the IRS now has information about an estimated 20 million Bitcoin investors — meaning that it will be much easier for them to crack down on unreported income.

Moving forward, they’re expected to monitor the digital currency much more closely — because while it’s entirely legal, neglecting to pay taxes on transactions is not.

Bitcoin and taxation

For most people who purchase and trade Bitcoin, the most important thing to consider is taxes.

If you live in a country in which Bitcoin is legal, you have nothing to worry about when buying, investing, trading, and accepting payments in Bitcoin.

In the United States, for example, these actions are all perfectly legal. But because the U.S. has already established regulations for taxing Bitcoin, it’s absolutely essential that you report your profits or losses on your taxes.

If you’ve never reported Bitcoins on your taxes, the most important thing to know is that they’re treated as property and not currency.

So as you make transactions, be sure to keep accurate records of each one so that you can accurately report them the same way you’d report stock trades.

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For more information, check out our more detailed Bitcoin Tax Guide.

Conclusion

Legal concerns are one of the biggest reasons that many people hesitate before buying or selling Bitcoin.

Fortunately, if you live in one of the many countries in which it is legal, you have nothing to worry about as long as you pay the correct taxes.

Still, it’s always a good idea to stay up on the latest cryptocurrency news so that you can be confident you’re in line with your country’s regulations.

And if you’re not sure how, check out our resource on how to stay informed about Bitcoin.