Published: December 8th, 2022
Paraguay’s planned regulatory regime for the crypto mining industry hit the wall this week when legislators cancelled the country’s ‘crypto law’.
The legislation would have established a tax and regulatory framework for firms undertaking crypto mining in the country, but politicians decided to shelve the enacting bill after months of back-and-forth debate. The crypto law had already received a setback in August when President Mario Abdo Benitez vetoed the bill amid opposition claims that BTC mining consumed too much power and brought only minimal economic benefits to the country.
That move was then countered by pro-crypto senators who proposed a comprehensive rulebook to regulate the industry, which currently operates in a legal grayzone.
Fast forward to Monday, 5th December, when Paraguay’s lower house of parliament voted against enacting the bill, leaving it in legal limbo.
The proposed legislation would have capped electricity rates for mining operations while creating a consistent tax rate for the industry.
Electricity in hydro-rich Paraguay is plentiful and cheap, making it attractive to Bitcoin miners who consume it by the terawatt in order to keep the Bitcoin blockchain operational. But despite having the legislation sidelines, some of the country’s blockchain leaders weren’t unhappy with the result.
Luis Benitez, secretary Blockchain Association of Paraguay, told the press that ‘sanity had prevailed.’ He added that the crypto industry was working with lawmakers to educate them on how the industry should be regulated. The hope is that a better bill can be drafted that’s more aligned with the current state of blockchain technology and maturing crypto services like DeFi.
Want it means for the big mining outfits preparing to set up shop in the South American country remains to be seen. Canadian giant Bitfarms said last year that it would expand to the country thanks to a five-year power purchase agreement (PPA) that secured the price and volume requirements for the facility.
Even before the FTX meltdown, other crypto-friendly jurisdictions were re-thinking their legal embrace of digital currencies.
As far back as May, Portugal’s reputation as a tax haven for crypto investors took a hit when the country's finance ministry announced that crypto assets will soon be subject to capital gains taxes.
The news marked a sharp change in Portugal’s stance toward crypto. The country has treated cryptocurrency trades like cash transactions rather than investments, excluding crypto from capital gains taxes by definition.
Because the previous tax rate was effectively zero, Portugal had established a reputation as one of the most attractive jurisdictions on the planet for crypto investors. Lisbon became a global crypto hub as a result.
Perhaps because of the level of tech and private investment crypto has attracted to the country, Portuguese officials were keen to avoid framing the shift as a departure from business-friendly policies. Rather, they said, lawmakers were simply regulating crypto as they’d always intended. The government wanted to observe how other countries were adapting taxes and regulations to ensure Portugal's policy decisions were in sync with others.
Finance Minister Jorge Medina said at the time that crypto is ‘an area where Portugal can learn from international experience.’
Several countries have started treating crypto-trading profits as capital gains. Australia’s tax authority published a warning to crypto holders this week, saying that anyone who hasn’t disclosed taxable earnings from the sale of cryptocurrencies and NFTs would be required by law to do so.
Portugal may not be finished with crypto-related taxes. Medina also told parliament this week that cryptocurrencies presented regulators with ‘a more complex set of financial mechanisms than current capital gains taxes are designed to cover.’ He implied that crypto in Portugal might need to be subject to stamp duty, VAT, or even property taxes in the case of NFTs.
‘We are reconsidering all taxes and regulations that touch on crypto activities,’ said Medina. ‘We aren't simply trying to grab headlines. Portugal needs a legislative initiative that addresses cryptocurrency in all its dimensions.’
Mixed signals abound. As recently as July, financial regulators in Lisbon granted a license to Bison Bank, one of the country’s largest high street lenders to launch a new entity offering crypto custody and exchange services.
A press release announcing the launch said customers would have access to a wider range of products and services that are ‘in line with emerging trends in this new segment.’
Bison Digital Assets is also targeting institutional investors, family offices, and other high-net-worth individuals. The company hasn't said yet which cryptocurrencies it will support, though BTC and ETH along with stablecoins like Tether (USDT) and USD Coin (USDC) seem a safe bet.
Under the watchful eye of the Banco de Portugal central bank, Bison Digital Assets will have to abide by strict anti-money laundering and counter-terrorism rules.
It wasn’t the first crypto-friendly move made by Portuguese lawmakers. Before the capital gains tax announcement, Portugal was one of the tax-friendliest regimes for crypto investors in the world.
Proceeds from the sale of cryptocurrencies had been effectively exempt from taxation since 2018. Capital gains tax on other traditional investment activities sits at a whopping 28 per cent.
Portugal has also been the scene of some of the biggest crypto-industry events, including Solana’s annual Breakpoint Conference last year.
Across the Atlantic it remains to be seen if countries like Argentina and El Salvador will walk back their moves to embed crypto in their respective monetary systems.
Buenos Aires-based Banco Galicia, Argentina's largest private bank, began offering clients access to trading services in four different cryptocurrencies, BTC, ETH, XRP and USD Coin. In 2021, El Salvador became the first country in the world to use Bitcoin as legal tender, after having been adopted as such by the Legislative Assembly of El Salvador in 2021.