Cryptocurrency regulation in Moldova

Cryptocurrencies are becoming increasingly popular. Because of this, countries are introducing rules to try to regulate their use. Trying to understand how to work with the new form of money. Moldova, for its part, introduced strict restrictions on transactions with virtual assets. But was this the only way forward? Or did the state miss out on new financial opportunities?

The idea of creating a digital analogue of cash has been around since the advent of the Internet. The breakthrough came with the development of blockchain technology and the first cryptocurrency, bitcoin. A decentralised system without a single controlling authority. Allowing anonymous transfers between recipients. Instantly and without commissions.

The absence of any internal or external manager leads to the fact that banks, tax, judicial and other government agencies cannot control the transactions of payment system participants. Pseudonymity of payments is regarded by many as a protection of privacy. But it also creates risks of money laundering, fraud and financing of crime. 

Moldovan ban on crypto-operations

Recognising the risks associated with unregulated trafficking. Many countries are introducing special rules. Aiming to find a balance between supporting innovation and the safety of the financial system. At the same time, the approaches of states differ significantly. Moldova has chosen the most rigid way.

From 1 July 2023, individuals and legal entities in Moldova are prohibited from dealing with cryptocurrencies. According to Law No. 66 of 30.03.23. 

In practice, making it impossible to use crypto for payments, transfers and any other transactions. The only use is to hold digital coins as an investment or savings asset. However, a paradox arises. Moldovan citizens cannot legally purchase or exchange cryptocurrency for subsequent storage. In addition, any income received from investments in crypto-assets is subject to income tax in 12%.

On the one hand, such strict measures minimise the risks of illegal use. On the other hand, they deprive the possibility of using it for legal purposes. For example, as a tool to protect capital against inflation. 

In 2022, with inflation around 30% in Moldova, an investment in Bitcoin could yield a return of ~85%. Bitcoin went from ~$39,000 on 14 March 2022 to ~$73,000 on 14 March 2024. Of course, such investments are risky. But cryptocurrencies could have been one possible way to preserve purchasing power. However, the ban deprives citizens of this tool.

Impact on the IT environment

Recent legislative innovations have had a negative impact on local crypto startups and IT companies related to blockchain development. One of the victims of the ban was Coinbank. The first and only legal crypto service in the country. At the time, it provided services for buying and selling bitcoins through special crypto-machines. 

After the law came into force, Coinbank suspended operations to avoid legal liability. There is a petition on the company's website against the new legislation, which collected some 20,000 signatures. 

Coinbank's petition expresses its disagreement with the restrictions and its intention to initiate a campaign to abolish them. According to industry representatives, the lack of competent regulation creates the risk of complete loss of this new innovative industry. 

Experts of the World Economic Forum consider a complete ban to be irrational. It creates serious barriers to innovation, modernisation of payment systems and entry into new markets. 

Conclusions and outlook

Unlike Moldova, most EU countries are trying to develop a more flexible regulation. This allows the benefits of digital finance to be exploited while minimising the associated risks. 

The most common approach is the creation of licensed crypto exchanges. With mandatory verification and compliance with anti-money laundering regulations. Thus, increasing the transparency of operations, but not prohibiting legal operations.

The issue of regulating cryptocurrencies is a complex task that requires a balanced approach to strike a balance. Moldova should decide whether it will be part of the digital revolution or miss out on new economic opportunities by maintaining the ban.