EU Crypto Regulation Update

In this post I want to cover the regulation intentions by the EU. You might also want to look at the reasons for why the next bull market will be about privacy and individual autonomy.

The EU does not like Crypto

Just recently the ECB blog made a post in which the authors argued that Bitcoin will not have any noteworthy future. It's definitely worth a read just to see how the big institutions are thinking. about crypto. It's obvious that they completely fail to see the point of decentralized blockchains and their role in society. That is largely because they see it as a threat that has to be controlled.

The value of bitcoin peaked at USD 69,000 in November 2021 before falling to USD 17,000 by mid-June 2022. Since then, the value has fluctuated around USD 20,000. For bitcoin proponents, the seeming stabilization signals a breather on the way to new heights. More likely, however, it is an artificially induced last gasp before the road to irrelevance – and this was already foreseeable before FTX went bust and sent the bitcoin price to well below USD16,000.

So who else is going to bet that Bitcoin will essentially go to 0 in the next years? Don't count me in...

There are at least two current pushes by the EU in regards to regulation which I will explain here.

EU's goal #1:

a regulation recasting the regulation on transfers of funds which aims to make transfers of crypto-assets more transparent and fully traceable

The aim of this recast is to introduce an obligation for crypto asset service providers to collect and make accessible certain information about the originator and the beneficiary of the transfers of crypto assets they operate.

This means that exchanges will have to carry out "checks" of their customers for all transactions over 1000€. These checks will essentially include confirmation of who is receiving the funds and who sent them.

But it is completely unclear what this means in practice. For example, can I just tell my exchange that a "self-hosted wallet" belongs to me? And how would I do that; give them my private keys (lol)? And could I then just send funds to the exchange then? If so, this does not mitigate any risks like terrorism or money laundering. The only way for this to sort of work is if they ban non-custodial wallets. But even then I could open a custodial wallet on an exchange outside the EU and then send the funds to the EU exchange.

Have they thought this through? I doubt it.

EU's goal #2:

Requiring exchanges to report all transactions to tax authorities.

While the first goal is to make crypto transactions "transparent", this second goal aims to make sure that these transactions are also being taxed.

The blog states the obvious:

However, tax authorities currently lack the necessary information to monitor proceeds obtained by using crypto-assets, which are easily traded across borders

But this also means that they currently do not monitor transactions on exchanges (at least not on a general basis). Personally, I was not sure if this was the case yet; so we get a confirmation at least. They also give us a date on when we can expect this to take effect:

It is foreseen that the new reporting requirements with regard to crypto-assets, e-money and digital currencies would enter into force on 1 January 2026.

So... 3 more years of tax authorities not being given transaction information from the exchanges. The EU does move slowly.

Conclusion

It's important to understand where things are moving in crypto and that includes the regulation side of things. Of course this will be different depending on where you live, but it seems that there is a global push towards these measures with only few countries that go a different route. The practical implementations will be extremely challenging for the authorities and exchanges to enforce and if they do indeed push this through as intended the crypto industry will probably move out of EU. But I guess that is exactly what they intended...

Food for Thought @edicted @theycallmedan @taskmaster4450

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