Navigating the Legal Path: Legally Managing Cryptocurrency Investments

The rise of cryptocurrency investments has opened up new horizons for investors, offering a decentralized and potentially high-yield platform for wealth management. However, the journey from enthusiast to professional requires navigating a complex legal landscape. In this guide, we will explore the necessary steps to legally manage cryptocurrency investments in a way that complies with national regulations and tax laws.

The Legality of Cryptocurrency in Most Countries

Contrary to popular belief, cryptocurrencies themselves are mostly unfettered because they are digital assets not regulated in their core nature. Their legality often comes into play when they are used to purchase assets or financial instruments. In most countries, the issue arises when individuals or entities obtain significant value from cryptocurrency activities but fail to declare these assets and pay the appropriate taxes. This approach is inherently problematic and can lead to sanctions and penalties.

Declarability and Tax Compliance

To mitigate this issue, it is essential to declare all cryptocurrency assets and pay the relevant taxes. Most countries have specific tax laws that require the disclosure of digital assets. Failing to do so can result in legal complications and could even land you in federal prison for securities fraud. Thus, understanding the legal implications is the first step in responsibly managing cryptocurrency investments.

Securities Law and Licensing Requirements

In certain jurisdictions, the management of cryptocurrency investments falls under securities law. This means that individuals or entities seeking to manage these investments professionally must obtain the necessary licenses. These licenses typically govern the activities of Registered Representatives or Investment Advisors, who are responsible for the fair and ethical management of client assets.

For example, in the United States, the financial advisor must either possess the Series 7 (General Securities Registered Representative) or the Series 13 (Investment Adviser Representative) credentials. These certifications provide the knowledge and legal standing required to navigate the complexities of the securities market, including cryptocurrency investment management.

Global Licensing Standards and Variations

While the fundamental principles of securities law apply globally, the exact requirements can vary significantly across countries. In South Africa, for instance, the Financial Sector Conduct Act (FSCA) requires investment professionals to obtain a Financial Services Board (FSB) license. Acquiring an FSB license can be particularly challenging, as it is near impossible to obtain without substantial investment and effort. Furthermore, the initial application fee can range into the hundreds of thousands of South African rand (R100k) and is non-refundable.

Conclusion: A Path Forward

Legally managing cryptocurrency investments is not only about complying with tax laws but also about adhering to securities regulations and obtaining the necessary licenses. Whether you are based in the United States, South Africa, or another jurisdiction, understanding the legal landscape is crucial. By obtaining the required securities licenses and declaring your cryptocurrency assets, you can ensure a responsible and legally compliant approach to your investment management.