Is Bitcoin Trading and Investing legal?

Bitcoin has exploded in popularity over the past few years. Governments have responded to this rise with varying levels of rules and regulations.

One question that consistently comes up is, “Is Bitcoin trading and investing legal?”

The answer to this question is more complicated than you might think – the answer is it depends.

The legality of Bitcoin trading and investing depends on a few different things. The most important factor, of course, is the jurisdiction that you plan on trading and investing in Bitcoin. 

However, that isn’t even the most complicated aspect of Bitcoin trading and investing. The complicated aspect involves the taxes that you must pay on any earnings you make from Bitcoin.

Anyway, this article will go into detail about the legal aspect of Bitcoin in different jurisdictions. We will also cover the tax aspect as that is usually where Bitcoin traders run into problems with their government.

The Legality of Bitcoin Trading and Investing 

First of all, trading and investing in Bitcoin is perfectly legal in most jurisdictions. There are some legal requirements that you must fulfill before you can invest and trade in Bitcoin, though.

Anti-Money Laundering Laws

You must follow certain anti-money laundering laws if you plan on investing or trading in Bitcoin on most cryptocurrency exchanges. Of course, there are some exceptions to these guidelines. 

Those exceptions are usually cryptocurrency exchanges that don’t accept deposits from fiat currencies. You simply deposit Bitcoin, or other accepted cryptocurrencies, onto the exchange.

For the majority of cryptocurrency exchanges, however, you will have to meet know your customer (KYC) regulations. This involves submitting photo identification to the cryptocurrency exchange. 

In the case of United States based cryptocurrency exchanges, you will have to submit your Social Security number as well. This is so the exchange can issue you a 1099-MISC tax form on all earnings.

Is Bitcoin trading legal in the United States?

Yes. Bitcoin trading in the United States. As with most countries, you must pay taxes on all Bitcoin earnings, but trading Bitcoin is perfectly legal. 

Is Bitcoin trading legal in Canada?

Bitcoin trading is also legal in Canada. However, Canada treats Bitcoin, and all cryptocurrencies, as a commodity and not an asset.

This means that you must pay taxes on all earnings from Bitcoin trading.

Is Bitcoin trading legal in the European Union?

Yes. The European Union is the friendliest “country” (group of countries) towards cryptocurrency. 

The European Union actively encourages the use of cryptocurrency, so it’s obviously legal to trade Bitcoin in the European Union. Again, you must pay taxes on all earnings from Bitcoin trading or investing. 

Is there a value added tax (VAT) on Bitcoin in the EU??

No. The European Union has given all cryptocurrencies a VAT exemption. This is huge because it will save you a lot of money when trading cryptocurrency.

Frankly, you would not be able to profitably trade cryptocurrency if you had to pay a VAT on cryptocurrency. It simply wouldn’t be feasible. 

Is Bitcoin illegal in any country?

Yes. There are a few countries where Bitcoin is outright banned or severely restricted to make it practically useless. Here are some of the countries where trading or investing in Bitcoin is illegal.

China

The Chinese government has taken a hard stance against cryptocurrency. Chinese banks and payment processors are forbidden from transacting with cryptocurrency exchanges because the Chinese government has banned cryptocurrency.

In addition to that, the Chinese government has begun cracking down on cryptocurrency miners. 

This looks like it will change at some point in the future, which looks good for the future of cryptocurrency due to the large Chinese population.

Columbia

Columbia has banned all investment and use of Bitcoin. The enforcement of this law is generally lax, but the law is on the books. 

Ecuador

Ecuador voted to outright ban cryptocurrency. Just like Columbia, enforcement of this law is spotty. But you can go to jail or face a fine for trading or investing in Bitcoin in Ecuador.

Bitcoin Trading and Investing – Tax Implications

As you might have noticed, Bitcoin trading and investing is legal in the vast majority of countries. That doesn’t mean it isn’t regulated, though. 

The government still wants their cut of any earnings you make from trading or investing in Bitcoin.

It’s beyond the scope of this article to cover the tax implications of Bitcoin in every country. In short, most countries classify cryptocurrency as either an asset or commodity. 

Most countries also require you to pay taxes on all cryptocurrency transactions and not only transactions from cryptocurrency to fiat currency. This means you will have to pay taxes on earnings if you sell your Bitcoin for Ethereum or Litecoin. 

Yes, this can make the taxes involved with cryptocurrency trading very complicated. We recommend using a software to track all your cryptocurrency transactions to make things easier when you file your taxes.

Can I write off losses from cryptocurrency trading?

Yes, you can generally write off all losses from cryptocurrency trading and investing. This will sometimes trigger an audit if you have a big write off, so make sure you keep good records in case you do get audited. 

Finding an Accountant for Cryptocurrency Trading and Investing

Unfortunately, most accountants do not have a good understanding of cryptocurrency taxes. This is why we recommend keeping good records to make your accountants job easier.

Good record keeping will also keep your accounting fees down when it comes time to prepare your taxes.

Final Thoughts

That covers it for the legality of Bitcoin around the world. In summary, trading and investing in Bitcoin is legal in the vast majority of countries. 

You will simply have to pay taxes on all earnings derived from trading. On the flip side, you can usually write off all losses incurred from trading cryptocurrency in most jurisdictions.

Overall, the laws surrounding Bitcoin investment and trading are not particularly strict. The government simply wants to collect taxes. Unfortunately, Bitcoin is not legal tender in any jurisdiction at the moment, but that could change in the future.