Cryptocurrencies under siege

The Treasury wants to force holders of virtual currencies to declare them and clarify whether they are held abroad or not

4 min
Blockchain technology is applied to cryptocurrencies such as bitcoin.

Madrid / BarcelonaGovernments and supervisory bodies are suspicious about cryptocurrencies. The aim is to increase control over a kind of asset which, precisely, is going through one of its worst moments due to the war in Ukraine. The Spanish government has now taken a step further in this direction. The Ministry of Finance is preparing a royal decree which will amend the General Tax Law and the Personal Income Tax Regulations and incorporates new obligations for owners of cryptocurrencies, both at an informative level and in terms of the operations they make. "It is a new currency we should be able to regulate so that there is no kind of fraud or any undesirable effect on the economy", Minister of Finance María Jesús Montero told TVE on Tuesday.

The Treasury – hand in hand with the Ministry of Economy – is working on this new law that, as its main changes, will tighten rules so owners and exchange platforms declare their balances for this kind of currencies and, at the same time, will have to inform whether they are held abroad or not. In the first case, the Ministry of Finance wants individuals and entities that are holders or beneficiaries of "private cryptographic keys" to report annually their balances as of December 31, both inside and outside the State. In this sense, it will be understood that they are abroad when the owner is not obliged to file a tax return in Spain. The information will have to include, for each virtual currency, the type of currency, the number of units accumulated on December 31 and their valuation in euros, as stated in the regulation.

Reporting a cryptocurrency's value in euros poses difficulties, as they are especially volatile assets. The Treasury proposes the median quotation as of December 31 offered by the main trading platforms be taken into account. If this information is not available, mechanisms that provide a reasonable estimate of the market value in euros of the cryptocurrency on this same date will be used. The draft rule includes that reporting will have to start from January 1, 2023, i.e. it will already have an impact on this year's holding and trading.

But cryptocurrency owners and brokerage platforms will not only have to report the amount of virtual currencies they hold, but also the operations they carry out. Specifically, they will be obliged to file an annual informative declaration in relation to the operations of acquisition, swap, transmission and transfer of virtual currencies. The Treasury will want to know when the transaction was made, its origin and destination, the kind of currency, the amount and its value in euros, among other data.

All in all, this Tuesday the president of the National Securities Market Commission (CNMV), Rodrigo Buenaventura, said the entity will monitor the promotion of cryptocurrencies in sporting events or their financing clubs or organisations. The financial regulator has also anticipated that it will study a new regulation to prevent the advertising of cryptoassets from endangering fans' savings.

The weight of virtual currencies in Spain

According to a report from the end of 2021 by Asufin, the Association of Financial Users, there are 4.4 million people in Spain (11% of the population) who have at some point invested or invest regularly in cryptocurrencies. Of these digital coin holders, one in four has already disbursed more than €6,000. The most alarming data, however, is that 70% of cryptoasset users in Spain think that they are investing in platforms supervised by some kind of authority, either the Bank of Spain, the CNMV or a bank under the umbrella of the European Central Bank (ECB).

The same study highlighted that only 30% of these investors are aware of the tax implications of holding them. Moreover, 40% said they do not have to pay any kind of tax on the profits they make with cryptocurrencies. The same percentage of people also insisted that these types of investments are a "safe bet".

It is possible that some of these cryptofans have changed their minds since the publication of the Asufin report, since in the last eight months the price of bitcoin has plummeted after achieving its all-time high in November 2021. Then, the best-known cryptocurrency exceeded $66,000, while this Tuesday it was trading around €20,200 (this weekend it fell below $20,000 for the first time since the end of 2020). This new crash has also been seen in other digital currencies such as ethereum, which is barely back above $1,000, despite having brushed the $4,500 mark just a few months ago.

In fact, the Balance of International Payments (BIS) has warned this Tuesday that cryptocurrencies are not stable money, "as shown by the recent market turbulence and price collapse suffered by some of the main currencies." In turn, the Bank of Spain (BdE) warned some time ago that the Spanish state had become the fifth European economy with the highest volume of cryptocurrency transactions in Europe, and estimates that it is already investing 12% of its GDP in cryptocurrencies and estimates that 12% of the adult population already invests in cryptocurrencies, in which the 18-24 age group stands out. This scenario "worries" the agency because of the "lack of financial culture and exposure to scams".

In 2021 alone, virtual currencies were worth €60bn in Spain, according to the BdE. The agency assumes that it is difficult to draw conclusions from the sector due to the lack of official information, and therefore insists on the need to regulate it through international coordination and despite "the challenges it poses". In the same line Montero, who believes in international coordination, spoke along the same line.