Crypto Regulation by Country: How Governments Are Responding

Book: Cryptocurrency QuickStart Guide: The Simplified Beginner’s Guide to Digital Currencies, Bitcoin, and the Future of Decentralized Finance
Author: Jonathan Reichental
ISBN: 978-1-63610-041-8

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Crypto was built to be borderless. The internet does not care about passports, and Bitcoin was designed the same way. But governments absolutely care about money leaving their control. Chapter 13 is Reichental’s tour of how countries are trying to fit crypto into (or shut it out of) their financial systems.

Hillary Clinton summed up the establishment worry at a 2021 Bloomberg conference in Singapore: crypto could undermine currencies, challenge the dollar’s reserve status, and destabilize nations. Whether you agree with her or not, world leaders are listening.

Why regulation showed up now

Financial regulation exists to keep systems stable and protect consumers. Banks have lived under these rules for decades. Crypto showed up, grew fast, and for years flew mostly under the radar.

Then it got big enough to matter. The FTX collapse in November 2022 was the wake-up call everyone references now. When a major exchange loses $1-2 billion in customer funds, regulators stop treating crypto as a curiosity.

The World Economic Forum frames crypto regulation the same way it frames traditional finance: support stability, protect investors, and keep the playing field level. About one in five Americans had touched crypto trading by the time Reichental wrote this. In Singapore, the numbers were even higher.

There is a real tension here. Crypto advocates say decentralization is the antidote to another 2008 meltdown. Regulators say uncontrolled growth is exactly what causes meltdowns. Both sides have a point.

How the US handles crypto

The US started with a hands-off approach. Bitcoin was interesting but not urgent. That changed as the market grew and ICO scams piled up. The SEC began regulating initial coin offerings in 2017.

The default US strategy is “regulation by enforcement.” Congress has not passed comprehensive crypto-specific laws, so agencies apply existing statutes. Money laundering and terrorism financing rules already on the books can cover crypto cases even though they were not written for it.

In March 2022, President Biden signed an executive order on responsible digital asset development. It called for studying economic risks, exploring a US central bank digital currency (CBDC), and examining how crypto could help underserved communities.

SEC chair Gary Gensler, who literally taught blockchain at MIT, argued that crypto exchanges should be regulated like brokerages and many crypto assets should be treated as securities. The crypto community pushed back hard, saying securities law was never designed for this technology.

The FTX scandal accelerated everything. When Sam Bankman-Fried’s empire collapsed, the conversation shifted from “should we regulate?” to “how fast can we regulate?”

Crypto taxes in the US (the part that actually affects you)

The IRS treats cryptocurrency as “virtual currency,” not cash. How you are taxed depends on how you use it.

Got paid in crypto for work? That is ordinary income based on the dollar value the day you received it. Bought crypto and held it over a year? Long-term capital gains rates apply (0% to 20% depending on income). Sold within a year? Short-term rates match your regular income bracket (10% to 37% in 2022).

Spending crypto on purchases triggers sales tax too. State rules vary wildly. Arizona proposed treating Bitcoin as legal tender. Alabama exempted crypto from property-value taxes. It is a patchwork.

The Infrastructure Investment and Jobs Act of November 2021 tightened reporting requirements for crypto brokers. Several bills since then have tried to roll those rules back, arguing they stifle innovation.

Bottom line: if you are a US crypto user, the IRS cares about your activity whether or not you think of yourself as an “investor.”

The global map is all over the place

Reichental walks through country-by-country approaches, and the range is wild.

China banned crypto outright in September 2021, building on earlier bans of bank crypto transactions and mining. The official reason is financial crime and instability. The real driver may be capital flight and the “common prosperity” push for state economic control. Enforcement is leaky. Underground mining has crept back.

El Salvador went the opposite direction, making Bitcoin legal tender in November 2021 under President Nayib Bukele. The goal was banking the unbanked (70% onboarded within six months) and boosting cross-border payments for tourism. Bad timing though. Bitcoin peaked right when they bought in, then crashed. Less than a quarter of Salvadorans actually used it in the first year. Bukele stayed committed anyway.

Central African Republic became the second Bitcoin legal tender country in June 2022, hoping to attract mining investment to one of the world’s poorest nations.

Middle East and North Africa (MENA) is a mess of contradictions. Egypt’s top Islamic authority declared crypto haram (forbidden) in 2018. Turkey banned crypto payments after the lira collapsed. Yet MENA crypto adoption grew almost 50% in the year ending June 2022 as people hedged against inflation. The UAE and Dubai went the other way entirely, building a crypto-friendly regulatory hub to diversify beyond oil.

Sub-Saharan Africa accounted for only 2% of global crypto activity but has the highest retail usage rates anywhere. In Kenya and Nigeria, where banks cannot legally handle crypto, peer-to-peer trading dominates. About 80% of the region’s crypto activity is small retail transfers. People are using crypto to build wealth outside broken local systems.

The number of countries restricting crypto doubled between 2018 and 2022. Even where it is legal, governments are still figuring out next steps.

Tax havens and tax headaches worldwide

Tax policy is just as inconsistent. The US taxes crypto as an asset with capital gains. So do the Netherlands and Canada.

Singapore, Portugal, Switzerland, and Germany are known as crypto tax havens because they do not impose capital gains taxes on crypto in the same way. Singapore had 22% of its population invested in crypto.

DeFi transactions are largely unaddressed in tax codes everywhere. Regulators are falling further behind as the technology evolves. PwC’s 2022 Global Crypto Tax Report basically admitted agencies cannot keep pace.

The honest pros and cons

Reichental lays out both sides without picking a winner.

For regulation: consumer protection, market stability, reduced fraud, preventing another FTX-style disaster, and giving institutional investors confidence to participate.

Against regulation: stifling innovation, applying outdated frameworks to new technology, pushing activity offshore, and undermining the decentralization that makes crypto valuable in the first place.

My read: most regular people want some protection. Most crypto builders want clarity more than they want zero rules. The fight is over what “the right amount” looks like.

Where this is heading

Reichental connects crypto regulation to the Fourth Industrial Revolution, the broader shift from analog to digital across every part of life. Klaus Schwab of the World Economic Forum called blockchains “the heart of the Fourth Industrial Revolution.”

Governments probably will not ban crypto entirely, just like they did not ban AI or genetic engineering. They will regulate it, sometimes clumsily. Bans will come and go. Rules will multiply faster than anyone can enforce them.

For anyone holding crypto, the practical takeaway is simple: know your country’s rules, report your taxes, and do not assume today’s legal status will be the same next year. The regulatory landscape is the least stable part of an already volatile asset class.

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