While cryptocurrencies and cryptoassets are a technological and economic fact, high legal and regulatory uncertainty concerning so-called \u201ctokenomics\u201d still remain. On an EU level, it is safe to say that there is still no specific legal framework. However, Luxembourg\u2019s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF<\/b>), was a pioneer in the EU with its official\u00a0\u201cBitcoin Communiqu\u00e9 2014<\/b>\u201d, dated February 14, 2014. It stated that even if there is no specific legal framework, the existing traditional financial regulation may apply and that Bitcoin may qualify as \u201cscriptural money\u201d if broadly adopted as a means of payment by its user network.<\/p>\n
To take its Bitcoin efforts a step further, CSSF licensed the first-ever EU-licensed crypto firm Bitstamp, the oldest crypto trading platform in the world. This step was highly innovative from a regulatory perspective, as the CSSF opted to grant a payment institution license under the EU Payment Services Directive (EU 2015\/2366) to Bitstamp. Such licenses give recipients an EU passport for the whole European Economic Area (EEA<\/b>): currently all EU member states plus Iceland, Liechtenstein and Norway.<\/p>\n The payment institution license granted by the CSSF is highly attractive to global crypto players due to its broad territorial compliance coverage.<\/p><\/blockquote>\n Besides Bitstamp, another well-known company, bitFlyer, originally from Japan, was granted the same license by the CSSF in 2018. As a result, bitFlyer is licensed in Japan, the EEA (via Luxembourg) and in 43 out of total 50 US states.<\/p>\n The payment institution license granted by the CSSF is highly attractive to global crypto players due to its broad territorial compliance coverage. However, it is important to note that the CSSF is known for its rigorous vetting process and will only license companies that have proven their potential and commitment to strong KYC policies and AML\/CTF checks.<\/p>\n Besides the two aforementioned EU payment institution licenses, a third license, namely an EU-compliant electronic money institution Directive license (E-money Directive 2009\/110\/EC) was granted to Luxembourg-based firm Snapswap. Snapswap\u2019s platform, built on blockchain technology, mirrors legal tender currencies allowing for instant money transfers in daily life.<\/p>\n The contrasting treatments of crypto trading platforms (e.g. Bitstamp , bitFlyer) and an electronic money platform (e.g Snapswap) might indicate that the CSSF has a different regulatory approach for each. This could also be a reason why CSSF quietly took the \u201cBitcoin Communiqu\u00e9 2014\u201d offline around mid-February 2018 without officially cancelling it. We therefore deduct that the \u201cBitcoin Communiqu\u00e9 2014\u201d is still valid and that the CSSF still considers bitcoin as scriptural money.<\/p>\n On March 14, 2018, four years after the release of its \u201cBitcoin Communiqu\u00e9 2014,\u201d the CSSF issued two new press releases: (i) \u201cVC Warning 2018<\/b>\u201d warned cryptocurrency investors and tokenholders about virtual currencies (VC<\/b>) (i.e. cryptocurrencies) and (ii) \u201cICO Warning 2018<\/b>\u201d warned about so-called Initial Coin Offerings (ICOs<\/b>) and tokens, while highlighting associated risks for investors. The CSSF mainly based its warnings on the lack of specific investor protection regulation and the fact that these transactions were not counter-guaranteed by\u00a0a government or\u00a0a central bank.<\/p>\n The CSSF stated that ICOs are subject to all current, existing laws, notably to AML\/CTF regulation. The CSSF further emphasized that it does not wish to impede blockchain, acknowledging the benefits of distributed ledger technologies for innovation and increased transparency in financial markets. The CSSF even invites ICO promoters to contact it before a potential launch in order to check the different legal frameworks that might apply. This discussion-based approach aligns with the CSSF\u2019s usual behaviour with respect to new technologies and innovation.<\/p>\n <\/p>\n In general, we have the impression that the European Commission, European Parliament and European Court of Justice lean toward cryptocurrencies being interpreted as a \u201cmeans of payment.<\/p><\/blockquote>\n Finally, the bill foresees a preemption right for the lessee who has held the lease for at least 18 years.<\/p>\n Additionally, we would like to highlight that in its \u201cVC Warning 2018,\u201d the CSSF states that cryptocurrencies are actually not currencies but rather a \u201cmeans of exchange,\u201d which seems to contradict the CSSF\u2019s \u201cscriptural money\u201d definition provided in the \u201cBitcoin Communiqu\u00e9 2014\u201d four years ago. Even though \u2013 as mentioned above \u2013 that communiqu\u00e9 was quietly taken offline mid-February 2018, it is important to remember that it has not been officially withdrawn. It is present in the CSSF\u2019s official newsletter n\u00b0157, dated February 2014; and still online at the date of this publication.<\/p>\n In general, we have the impression that the European Commission, European Parliament and European Court of Justice lean toward cryptocurrencies being interpreted as a \u201cmeans of payment.\u201d On the other hand, national governments \u2013 the financial market regulators and the central banks \u2013 advocate for a legal definition that favors a \u201cmeans of exchange.\u201d<\/p>\n At first glance, the difference in interpretations may seem trivial, but this distinction is crucial, as it will determine the tax treatment of cryptocurrencies. If cryptographic assets were defined legally as a \u201cmeans of payment\u201d, then cryptocurrencies would be treated the same as foreign currencies and thus be exempt from VAT. If, however, they were defined as a \u201cmeans of exchange,\u201d national VAT rates would apply.<\/p>\n To summarize, we currently ascertain that no specific regulation in Luxembourg is in place. However, Luxembourg\u2019s regulator is in constant contact with the active crypto platforms that are already present or supervised. As of the date of this publication, we expect the CSSF to continue considering every new application under one of the possible existing licenses.<\/p>\n Furthermore, there are hints (including from the CSSF) that the Anti-Money Laundering Directive 5 (AMLD5<\/b>) might define cryptocurrencies as a \u201cmeans of exchange\u201d which could send a VAT shockwave through European crypto markets.<\/p>\n","protected":false},"excerpt":{"rendered":" The legal nuances of regulating cryptocurrency While cryptocurrencies and cryptoassets are a technological and economic fact, high legal and regulatory uncertainty concerning so-called \u201ctokenomics\u201d still remain. On an EU level, it is safe to say that there is still no specific legal framework. However, Luxembourg\u2019s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), … <\/p>\n