Where Crypto Lending is Illegal

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

Crypto lending involves a lender loaning digital assets to a crypto-owning borrower and securing said loan by taking a security interest over the borrower's crypto assets. In this relationship, the lender often exercises control over the crypto assets, holding them as collateral until the loan is repaid or the crypto assets are liquidated.

The cryptocurrency industry is fast-growing and has become the subject of growing scrutiny from lawmakers and securities regulators. As such, the regulations in the crypto space are getting increasingly heated in the U.S. and the rest of the world.

In many locations, crypto lending firms are compelled to either bring their products in compliance with existing securities laws or close shop.

This article will provide details on where crypto lending is accepted, restricted, and outright illegal.

United States

Crypto regulation in the US has been largely positive. Cryptocurrencies are generally accepted in the United States, but the atmosphere surrounding crypto platforms and their services is restrictive. This is because the Securities and Exchange Commission (SEC) scrutinizes crypto products and services, and emphasis is placed on crypto platforms following the Investment Company Act.

The U.S. Securities and Exchange Commission (SEC) looks for crypto platforms that don’t act in the interests of consumer security. On February 14, 2022, it charged BlockFi—a lending platform—for failing to register the offers and sales of its BlockFi Interest Accounts (BIA) product.

The SEC also charged BlockFi with violating the registration provisions of the Investment Company Act of 1940. BlockFi agreed to pay $100 million in penalties and pursue its crypto lending product registration to settle the SEC's charges.

Several states in the U.S. are also cracking down on crypto companies. New York, Alabama, Kentucky, New Jersey, and Texas have brought cease and desist orders against crypto lending firms BlockFi and Celsius for providing unregistered securities.

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 unnamed crypto lending platforms and directed others to provide 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 crypto-assets in Europe.

In terms of regulation, the 5AMLD regulatory framework introduced in 2020 recognized crypto service providers as entities that need to conform to the same anti-money laundering and counter-terrorist financing requirements as mainstream financial institutions.

This means that crypto service providers operating in Europe need to register with their local authority and perform Know Your Customer (KYC) for users on their platform.

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

Other Regions Where Crypto Lending is Legal

Apart from the United States and Europe, crypto lending is legal in most countries that accept Bitcoin and cryptocurrencies. 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 nations have outright banned digital assets, while others have tried to cut off any banking and financial system support essential for their trading and use.

China

Everything about cryptocurrency is banned in China. Financial institutions were prohibited from engaging in crypto transactions, and the mining of Bitcoin was later banned. Moreover, the country is heavily pushing its digital yuan currency and trying to make it more widely available to consumers.

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

  • Qatar

  • Egypt

  • Iran

  • Tunisia

Crypto-themed products and services such as crypto savings accounts, interest-bearing accounts, and loans will certainly not thrive in these regions.

Key Takeaway

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

As seen in the rise of decentralized finance and crypto lending, innovation has disrupted the traditional financial systems. The government uses regulations and restrictions to help protect consumers in this fast-growing sector.

Furthermore, these new policies can be helpful to the users of cryptocurrencies and their various products and services as these time-tested security laws are made to protect their interests.

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