Numerous European countries have adopted crypto, especially Bitcoin, and Estonia is one of the leaders in Europe in fintech and friendliness towards cryptocurrencies in general, but now there is a new crypto legal framework that will affect the situation in the country.
Crypto in Europe
According to Crypto Event, Cryptocurrencies are legal throughout the European Union, but specific regulation and taxation standards vary widely. In matters of taxes, most EU countries are guided by the decision of the European Court of Justice of 2015, according to which the exchange of cryptocurrencies should be exempted from value-added tax (VAT), and the holder of coins should pay a capital gains tax.
Gradually, all countries adjust their regulatory standards to the FATF cryptocurrency regulation recommendations of June 21st, 2019. According to them, crypto websites should begin to comply with strict KYC/AML standards, as well as exchange user data with each other and the regulator.
In January 2020, the Fifth EU Anti-Money Laundering Directive (5 AMLD) entered into force, requiring mandatory registration of cryptocurrency exchanges with financial regulators and the transfer of customer wallet addresses to them. In general, the EU is gradually tightening the regulation of the cryptocurrency market.
The case of Estonia
Estonia is also among the cryptocurrency users. The authorities consider cryptocurrencies as digital assets that can be used as a payment instrument, but not be legal tender. As in other European countries, in Estonia crypto exchanges must receive two licenses:
- from a virtual currency exchange operator
- from a virtual currency wallet operator.
In January 2020, the country’s authorities announced that virtual currency service providers would be treated in the same way as financial institutions in accordance with Estonian anti-money laundering and anti-terrorist financing law.
However, the recent implementation of 5 AMLD will take its toll in Estonia as well. The previously-obtained license should also comply with the new regulations, and it will hurt crypto exchanges a lot. It seems Estonia has no other way rather than to meet the requirements.
Cryptocurrencies are universal. They can act as money in transfers, as security or product for an investor, as a 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 mechanical transfer of the norms of traditional regulation to cryptocurrencies does not work well. More and more regulators are tending to the obvious idea that they should be considered as a unique alternative class of assets, different from all others, with their advantages, risks and their own legal base. And given that cryptocurrencies are very different from each other – take at least decentralized and centralized projects – then, most likely, they need to be divided into several categories.
Ultimately, the way cryptocurrencies are classified largely determines the fate of the market. Crypto exchanges in Estonia will be forced to adapt to innovations, or the country will be at risk of revocation of their licenses.