Is Bitcoin legal in the UK? Good question. Even some people who own Bitcoin already don’t even know the answer to this question! So, what rules and regulations apply to cryptocurrency?
Cryptocurrency in UK: An overview
Cryptocurrency, particularly Bitcoin, has gained significant popularity in the UK. Its decentralised nature and potential for high returns have attracted both investors and businesses. However, the legal and regulatory landscape surrounding cryptocurrency has evolved, leading to questions about its legality and usage.
What regulatory protections apply to crypto?
Cryptocurrency in the UK is often spoken about along with the legality of Bitcoin in the UK. Bitcoin, like other cryptocurrencies, is legal to own and use in the UK. However, no crypto exchange is regulated. While not regulated, crypto exchanges have to be registered with a specific government body. There is no access to an ombudsman if you have a complaint about crypto and there is no deposit protection if you loss your crypto funds.
The UK government acknowledges the potential of cryptocurrency and blockchain technology, but it has taken a cautious approach to regulation.
As of now, cryptocurrencies are not considered legal tender in the UK, meaning they are not recognised as official forms of payment.
So, to answer the question, “Is crypto legal in UK?”, the answer is a definite yes, cryptocurrency is legal in the UK. But it isn’t legal tender.
You can buy, sell, and hold cryptocurrencies without breaking any laws, as long as you are using a registered exchange. Interested individuals can also keep track of the bitcoin price UK to monitor the market trends. However, the regulatory framework is still developing. So, it is a good idea to stay informed about any changes that might affect your crypto activities.
Crypto regulation: Expert opinion
Asher Tan, CEO of CoinJar, says that the registration of UK crypto platforms is a positive development for the industry. “Registration brings clear rules and standards that minimises consumers from fraud and scams. This builds trust in the industry and attracts more people to participate, knowing their investments are safer.”
Tan also says that regulatory oversight creates a more stable environment for long-term growth.
“This makes crypto more appealing to institutional investors and mainstream financial institutions. An influx of capital can fuel innovation and accelerate adoption.”
While some may argue that regulation of any industry stifles innovation, Tan says it could foster responsible innovation. “By creating a level playing field and protecting consumers, regulation encourages businesses to develop sustainable products and services that benefit the entire ecosystem.”
What regulation applies to UK-based crypto-asset businesses?
In the UK, the Financial Conduct Authority (FCA) is the primary regulatory body overseeing crypto-asset businesses. Since January 2020, businesses carrying out specific crypto-asset activities have been required to register with the FCA and comply with anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.
There are other things that registered exchanges have to do to meet the FCA requirements. One of them is that they can’t just market in any way they want. Advertising and marketing must comply with guidelines set out by the FCA.
They also must adhere to the Travel Rule. The Travel Rule requires cryptoasset businesses to collect and share information about where a crypto transaction originated. This is to enhance transparency and combat financial crime.
And lastly, registered crypto exchanges must require their customers to pass a knowledge test and wait for a 24-hour “cooling off” period before they can start buying and selling cryptocurrency.
It is not only cryptocurrency exchanges that these rules apply to. It also includes custodian wallet providers. These are services storing cryptocurrencies in a protective manner on behalf of clients.
And, it includes Initial Coin Offering (ICO) issuers and other similar activities. These are companies raising funds by issuing new cryptocurrencies.
What regulatory protections currently apply to cryptoassets in the UK?
So with cryptocurrency legal in the UK, what else do you need to know? Here’s an important point: Cryptocurrency is not covered by the Financial Services Compensation Scheme(FSCS). This means you have limited recourse if your crypto assets are lost or stolen.
Cryptocurrencies are not legal tender, so no protections are in place for consumers and investors. What else do you need to know?
AML/CTF regulations
Crypto businesses must comply with AML/CTF regulations to prevent illicit activities.
Consumer protection?
The FCA has warned consumers about the risks of investing in cryptocurrencies and has taken action against misleading or fraudulent crypto promotions. But there isn’t the usual consumer protection citizens of the UK would expect from other products.
Taxation
Cryptocurrency investment returns are subject to income and Capital Gains Tax in the UK. So your fellow citizens can’t hide their crypto away and not pay tax.
Crypto trading UK
Cryptocurrency trading in the UK is legal, but it’s important to choose reputable and FCA-registered platforms. These platforms are more likely to follow FCA’s marketing guidelines and comply with AML/CFT regulations, offering an almost standardised trading experience.
Crypto regulations and compliance requirements are already in place, but there is still more to come.
While the UK government is working on developing a comprehensive regulatory framework for cryptocurrencies, they are expected to further balance innovation with consumer protection and address issues like market manipulation and illicit activities.
The ideal scenario would be that the government will provide crypto startups with a sandbox environment to spur innovation.
How to trade crypto in the UK
To trade cryptocurrency in the UK, you first need to choose a reputable exchange. Popular exchanges like CoinJar are great for beginners.
After creating an account, you’ll need to verify your identity by providing documents such as a passport or driver’s license. UK residents are required (in accordance with local legislation) to complete an assessment and to wait 24-hours.
Once verified, you can deposit funds into your account using a bank transfer, credit card, or other supported methods.
After funding your account, you can select the cryptocurrency you want to buy. On CoinJar you can hold it in your account on the exchange, you don’t need to get a personal (external) wallet. It works in similar ways on other exchanges as well.
CoinJar provides its own wallet service. It is convenient, however being an online wallet there is a risk that it may be a victim of a cyberattack. Online wallets are often referred to as “hot wallets”. Alternatively, you can transfer your crypto to an external wallet. These are often referred to as “cold wallets” and are often used for long-term storage as they are offline and difficult to hack.
CoinJar keeps the vast majority of customer assets in cold storage or private multi-sig wallets and maintains full currency reserves at all times.
Once you want to sell, you can conveniently press the “sell” button. Once you get more versed in crypto, you can also use a professional exchange.
Recent regulatory developments
In the UK, the question isn’t ‘Is crypto legal?’ but rather ‘What regulatory protections apply to crypto?’ and ‘What regulation applies to UK-based crypto-asset businesses?’
The evolving regulatory environment in the UK is likely to affect both users and businesses involved in the crypto space. Increased regulation could provide more consumer protection and legitimise the industry, but it may also impose stricter requirements on businesses and customers.
The UK may also have a vested interest in shoring up the rules when it comes to crypto. The Bank of England has been exploring the potential of a central bank digital currency (CBDC), dubbed “Britcoin.” While still in the research phase, this could significantly impact the cryptocurrency landscape in the UK. So it makes sense that the regulatory environment needs to be shored up before they do this.
Crypto Wild West no more
Trading platforms in the United Kingdom which are registered cannot act like they live in the crypto Wild West. There are a lot of different types of crypto, and having registered crypto exchanges is a way to bring the high risks of buying and selling crypto assets down.
HMRC will most likely increase focus on collecting crypto taxes, so crypto enthusiasts have to pay the government when they have investment returns. Even if you exchange crypto for another crypto, the tax man needs to know about it.
Knowing what regulatory protections apply to cryptoassets in the UK (or more importantly being aware that there are none) is essential for any investor planning to enter the crypto industry.
Standard Risk Statement
The above article is not to be read as investment, legal or tax advice and it takes no account of particular personal or market circumstances; all readers should seek independent investment advice before investing in cryptocurrencies. The article is provided for general information and educational purposes only, no responsibility or liability is accepted for any errors of fact or omission expressed therein. Past performance is not a reliable indicator of future results.
UK residents are required (in accordance with local legislation) to complete an appropriateness assessment to show they understand the risks associated with what crypto/investment they are about to buy and enabling CoinJar to categorize them as an investor. New customers are also required under local regulations to wait 24-hours as a “cooling off” period (from account creation), before their account is active (i.e. to deposit, trade, withdraw etc.).
Cryptocurrency is currently not regulated in the UK. It’s vital to understand that once your money is in the crypto ecosystem, there are no rules to protect it, unlike with regular investments. You should not expect to be protected if something goes wrong. So, if you make any crypto-related investments, you’re unlikely to have recourse to the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS) if something goes wrong.
Remember:
Don’t invest unless you’re prepared to lose all the money you invest. This is a high‑risk investment and you should not expect to be protected if something goes wrong. Take 2 mins to learn more.
https://www.coinjar.com/uk/risk-summary
If you use a credit card to buy cryptocurrency, you would be putting borrowed money at a risk of loss. We recommend you obtain financial advice before making a decision to use your credit card to purchase cryptoassets or to invest in cryptoassets.
