In recent years, the cryptocurrency market has experienced explosive growth, prompting governments around the world to enhance their regulatory frameworks. Compliance issues surrounding cryptocurrency span its entire lifecycle—including acquisition, holding, trading, and disposal—each stage potentially involving differing requirements across jurisdictions. This article analyzes regulatory trends and practical challenges in three key jurisdictions: Mainland China, Hong Kong, and the United States.
I. Mainland China
China’s regulatory approach to cryptocurrency has evolved through three distinct phases:
- In 2013, it denied cryptocurrencies legal tender status, classifying them as virtual commodities.
- In 2017, authorities shut down trading platforms and halted token offerings.
- By 2021, all crypto-related business activities were officially deemed illegal financial conduct.
In judicial practice, courts typically hold that individual ownership is not illegal, but engaging in crypto as a commercial activity crosses regulatory red lines. Contract enforcement in crypto-related cases varies by region: some courts invalidate such contracts on the grounds of violating public order and morality, while others recognize the property attributes of Bitcoin.
On taxation, although the law technically requires individuals to report capital gains from cryptocurrency transactions, enforcement is case-by-case. There have been isolated instances of tax authorities retroactively collecting taxes from high-volume crypto investors.
II. Hong Kong
Hong Kong has emerged as a global leader in cryptocurrency regulation. In 2023, it launched a Bitcoin Spot ETF, allowing investors to hold crypto assets through traditional securities accounts. Notably, under Hong Kong’s investment migration program, some investors have successfully used HKD 30 million worth of Ethereum as proof of financial standing.
Its regulatory system is coordinated among the Securities and Futures Commission (SFC), the Financial Services and the Treasury Bureau (FSTB), and the Hong Kong Monetary Authority (HKMA).
From a tax perspective, Hong Kong does not impose capital gains tax. Only profits arising from business activities conducted in Hong Kong are taxable, and expenses such as mining equipment and electricity costs are deductible.
III. United States
The U.S. regulatory landscape for cryptocurrency is notably complex, involving multiple agencies:
- The Securities and Exchange Commission (SEC) treats certain cryptocurrencies as securities.
- The Commodity Futures Trading Commission (CFTC) classifies them as commodities.
- The Internal Revenue Service (IRS) considers them property for tax purposes.
The U.S. follows a global taxation regime. Income from crypto transactions—including trading, mining, and staking—must be reported. Capital gains taxes vary depending on the holding period:
- Gains on assets held for less than one year are taxed as short-term capital gains, with rates up to 37%.
- Gains on assets held for more than one year qualify as long-term capital gains, taxed at a relatively lower rate.
Conclusion
Achieving compliance in the crypto space goes far beyond legal consultation; it requires an integrated approach encompassing tax planning, identity structuring, cross-border frameworks, and risk mitigation strategies. For long-term preservation and orderly transfer of crypto assets, it is strongly advised to consult qualified professionals.
