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Where Crypto Lending is Illegal

Get the details on where crypto lending is accepted, restricted, and outright illegal.

Crypto lending is when a person with crypto assets lends crypto assets to someone else to earn interest. The lender backs the loan by taking a security interest in the borrower's crypto assets. In this arrangement, the lender usually has control over the crypto assets and keeps them as collateral until the loan is paid back or the crypto assets are sold.

The cryptocurrency industry is growing quickly, and lawmakers and securities regulators are paying more attention to it. As such, the regulations in the crypto space are getting increasingly heated in the U.S. and the rest of the world.

In a lot of places, crypto lending companies have to either change their products to comply with securities laws or shut down.

This article will explain where crypto lending is allowed, where it is limited, and where it is completely illegal.

United States

Crypto regulation in the US has been largely positive. Cryptocurrencies are mostly accepted in the U.S., but the environment around crypto platforms and the services they offer is restrictive. This is because the Securities and Exchange Commission (SEC) looks closely at crypto products and services, and because of the Investment Company Act, a lot of attention is paid to crypto platforms.

The U.S. Securities and Exchange Commission (SEC) looks for crypto platforms that don’t act in the interests of consumer security. It charged the money-lending platform BlockFi on February 14, 2022, because its BlockFi Interest Accounts (BIA) sales and offers were not registered.

The SEC also said that BlockFi didn't follow the rules of the Investment Company Act of 1940 about registering. To settle the SEC's charges, BlockFi agreed to pay $100 million in fines and get its crypto lending product registered.

Several states in the U.S. are also cracking down on crypto companies. The states of New York, Alabama, Kentucky, New Jersey, and Texas have told crypto lending companies BlockFi and Celsius to stop giving out unregistered securities. both of which are now insolvent.

New York Restrictions on Crypto Lending Firms

Crypto lending is not illegal in New York State, provided the lending platforms register with the New York Investor Protection Bureau if they are doing business in the state. Those without an exemption who fail to do so will be subject to civil and criminal penalties.

The New York Attorney General's Office (NYAG) shut down two crypto lending platforms that were not named and told others to give information about their products and businesses.

The European Union

The European Union and its member countries recognize and accept cryptocurrency as an asset. This means that it's not illegal to use Bitcoin and other cryptoassets in Europe.

In terms of regulation, the 5AMLD regulatory framework, which was put in place in 2020, recognized crypto service providers as entities that needed to meet the same anti-money laundering and counter-terrorist financing requirements as traditional financial institutions.

This means that crypto service providers in Europe need to register with their local authority and do "Know Your Customer" (KYC) checks on their users.

Crypto markets and lending are thriving in Europe, and some of the best lending platforms are based there. Nexo and YouHodler are some of the best lending platforms that are based in Europe.

Aside from the US and Europe, most countries that accept Bitcoin and other cryptocurrencies allow crypto lending. Canada, Australia, and El Salvador are wide adopters of cryptocurrencies. Thus, crypto lending is legal and welcome in these areas.

Conversely, the legality of crypto could always change, and some countries do not welcome the use of digital assets due to their volatility and decentralized nature. Several countries have outright banned digital assets, and others have tried to stop the banking and financial services that are needed for trading and using them.


Everything about cryptocurrency is banned in China. It was made illegal for financial institutions to deal in crypto, and Bitcoin mining was later made illegal as well. Also, the country is putting a lot of effort into promoting its digital yuan currency and making it easier for consumers to use.

There are more than 50 other countries where cryptocurrencies are banned. Some of these countries are:

  • Qatar

  • Egypt

  • Iran

  • Tunisia

Products and services with a crypto theme, like crypto savings accounts, accounts that pay interest, and loans, will not do well in these places.

Key Takeaway

In any industry, innovation comes first, and regulation comes later. This has proven to be true in the case of digital assets.

Innovation has changed the way traditional financial systems work, as can be seen by the rise of decentralized finance and crypto lending. The government uses regulations and restrictions to help protect consumers in this fast-growing sector.

Also, because these new policies are based on tried-and-true security laws, they can help protect the interests of people who use cryptocurrencies and their products and services.


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