Crypto: Belgium Sets Regulatory Framework for Bitcoin and Ethereum

In Belgium, the Financial Services and Markets Authority (FSMA), the Belgian financial police, has published a document stating that Bitcoin (BTC) and Ether (ETH) are not considered transferable securities. In addition, blockchain consensus does not affect the classification and valuation of cryptocurrencies under this scheme.

Bitcoin and Ethereum are not securities

In a November 22 announcement, the Financial Services and Markets Authority clarified that the Prospectus Regulations, the Prospectus Law and the Markets in Financial Instruments Directive (MIFID) rules of conduct do not apply to bitcoin and ethereum. Simply put, these cryptocurrencies are not securities.

Given the elements presented in this document, Bitcoin (BTC) and Ether (ETH) cannot qualify as transferable securities such as company shares.

This statement applies to all non-issuer cryptocurrencies except bitcoin and ethereum. To illustrate these situations, the FSMA gave the example of a financial instrument that was created using computer code and “was not used in accordance with an agreement between the issuer and the investor.”

“If there is no issuer, as in cases where the instruments are created with computer code and this is not done under an agreement between the issuer and the investor (such as bitcoin or ether), then in principle the Prospectus Regulation, the Prospectus Law and MiFID rules of conduct do not apply. »

In addition to being classified as securities or real estate instruments, the FSMA hopes to demonstrate how current financial regulations affect cryptocurrencies.

The agency has gone one step further in classifying virtual currencies by grouping them into several categories. It is clearly seen that the state of cryptocurrencies with shares of losses and profits may differ. If these virtual currencies are negotiable, they are securities. If they are not negotiable, they fall into the category of financial instruments.

Finally, a cryptocurrency is a security if it demonstrates the right to provide a product or service, then it is a security. Looking at the documents released by the FSMA, we hear voices against the rules in force in the United States. The SEC wants to maintain a monopoly on cryptocurrencies, especially after the FTX debacle.

Reference provision for the EU?

However, when these “instruments,” and in this case cryptocurrencies, have a “payment or exchange function,” they may be subject to “other rules,” the FSMA notes. They may apply to cryptocurrencies or persons (natural or legal) who provide services “in relation to these instruments”.

The FSMA also noted that the classification of these cryptocurrencies as securities does not depend on the technology used. Therefore, the previous rules apply regardless of whether the cryptocurrency is issued by a blockchain or another decentralized system.

All this does not mean that BTC and ETH are not subject to rules, but these rules will change depending on how the participants in the ecosystem use these assets.

“The phased plan is technologically neutral. The qualification of a security, financial instrument or investment instrument does not depend on the technology used. »

In addition, some cryptocurrencies should be considered as securities. Among other things, the proposed plan defines three particularly well-defined conditions to which many projects are subject.

“The collected funds go to the general funding of the transmitter, and the service or project is not yet developed. Tools are used to pay staff. The issuer organizes several rounds of sales at different prices. »

The clarification by the Belgian financial police is important because, as a European player, this understanding can serve as a guide for the EU.

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