The legal nuances of regulating cryptocurrency

While cryptocurrencies and cryptoassets are a technological and economic fact, high legal and regulatory uncertainty concerning so-called “tokenomics” still remain. On an EU level, it is safe to say that there is still no specific legal framework. However, Luxembourg’s financial regulator, the Commission de Surveillance du Secteur Financier (CSSF), was a pioneer in the EU with its official “Bitcoin Communiqué 2014”, 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 “scriptural money” if broadly adopted as a means of payment by its user network.


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): currently all EU member states plus Iceland, Liechtenstein and Norway.


The payment institution license granted by the CSSF is highly attractive to global crypto players due to its broad territorial compliance coverage.

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.


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.


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’s platform, built on blockchain technology, mirrors legal tender currencies allowing for instant money transfers in daily life.


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 “Bitcoin Communiqué 2014” offline around mid-February 2018 without officially cancelling it. We therefore deduct that the “Bitcoin Communiqué 2014” is still valid and that the CSSF still considers bitcoin as scriptural money.


On March 14, 2018, four years after the release of its “Bitcoin Communiqué 2014,” the CSSF issued two new press releases: (i) “VC Warning 2018” warned cryptocurrency investors and tokenholders about virtual currencies (VC) (i.e. cryptocurrencies) and (ii) “ICO Warning 2018” warned about so-called Initial Coin Offerings (ICOs) 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 a government or a central bank.


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’s usual behaviour with respect to new technologies and innovation.


In general, we have the impression that the European Commission, European Parliament and European Court of Justice lean toward cryptocurrencies being interpreted as a “means of payment.

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Additionally, we would like to highlight that in its “VC Warning 2018,” the CSSF states that cryptocurrencies are actually not currencies but rather a “means of exchange,” which seems to contradict the CSSF’s “scriptural money” definition provided in the “Bitcoin Communiqué 2014” four years ago. Even though – as mentioned above – that communiqué 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’s official newsletter n°157, dated February 2014; and still online at the date of this publication.


In general, we have the impression that the European Commission, European Parliament and European Court of Justice lean toward cryptocurrencies being interpreted as a “means of payment.” On the other hand, national governments – the financial market regulators and the central banks – advocate for a legal definition that favors a “means of exchange.”


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 “means of payment”, then cryptocurrencies would be treated the same as foreign currencies and thus be exempt from VAT. If, however, they were defined as a “means of exchange,” national VAT rates would apply.


To summarize, we currently ascertain that no specific regulation in Luxembourg is in place. However, Luxembourg’s 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.


Furthermore, there are hints (including from the CSSF) that the Anti-Money Laundering Directive 5 (AMLD5) might define cryptocurrencies as a “means of exchange” which could send a VAT shockwave through European crypto markets. For further information on cryptocurrencies or bitcoin regulation in Luxembourg, please feel free to contact us:


For further information, please contact:


Emmanuel Réveillaud
T: +352 444 222 1
Jeff Braun
T: +352 444 222 1

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