Crypto assets have stabilised their role as mediums of exchange
The amount of different types of crypto assets has continued to grow steadily and no direct monetary value can be calculated for all of them. As a rule, crypto assets have the value that the parties purchasing them are prepared to pay for them. Crypto assets are often also referred to as virtual or crypto currencies as most of them are digital currencies based on cryptography. Bitcoin is the crypto asset with the highest market value.
Crypto assets are not a legal tender but they can be used as mediums of exchange. Crypto assets can be accepted as means of payment in many places, ranging from online services to corner shops. Examples include Bitcoin and the e-money token USDC, which are widely accepted as means of payment.
As crypto assets have become more widespread, there are now many instruments that are marketed as crypto assets even though in reality they are of different nature. It may be difficult for consumers to differentiate such scam attempts from genuine crypto assets and for this reason, investors must be particularly careful. In addition to potential scams, investing in crypto assets also involves a significant financial risk due to the substantial fluctuations in their value.
The anonymous or pseudonymous nature of crypto assets also makes them easier to use in criminal exchange. Criminally acquired wealth exchanged into crypto assets is often more difficult to trace. The blockchain of Bitcoin, for example, is publicly accessible, which means that all transactions can be viewed and confirmed by others.
Crime involving crypto assets is on the rise
Fraud crime involving crypto assets is a phenomenon that also affects Finns. Different types of investment fraud have become a major source of income for criminals whose international and organised activities cause substantial losses to the victims. Crypto assets have become a widely used instrument in other fraud crime, and they are also used in drug-related crime, cyber-assisted offences and as a tool in money laundering to hide the origin of the assets.
Crime involving crypto assets is to a large extent international and international cooperation plays a key role in the efforts to combat it. The legislative amendments that entered into force in the European Union (EU) during 2024 will improve the regulation of crypto asset services and help to combat crime and the shadow economy.
The crypto asset markets are highly cyclical in nature and the interest in crypto assets has traditionally been high during periods of rapid economic growth. More extensive use of crypto assets also prompts criminals to exploit the situation, for example through crypto asset investment fraud, phishing and data breaches. In addition to the measures taken by the authorities, public awareness and the ability to identify the typical features of scams are key to combating fraud. Future threats include offences involving artificial intelligence and deepfakes.
The income tax act applies to personal taxation of crypto assets
In Finland, crypto assets are subject to taxation. According to the yearbook ruling (KHO 2019:42) on the taxation of crypto assets issued by the Supreme Administrative Court, in situations to which the income tax act (tuloverolaki; 1535/1992) applies, crypto assets are assets specified in section 45(1) of the income tax act. This means that the provisions of the income tax act on capital gains apply to the transfer of crypto assets, including the deduction of capital losses and the tax exemption of small capital gains.
In the tax control carried out in 2023, the Finnish Tax Administration uncovered capital gains of crypto assets totalling EUR 30 million that had not been reported in taxation. More detailed instructions on taxation of crypto assets can be found at vero.fi/en [.fi]›.
Regulation of crypto assets has increased
The skills, analytical tools, resources and powers of the authorities must be kept up to date to effectively prevent the exploitation of crypto assets in crime. Understanding the technology behind crypto assets and the business models that it makes possible continues to pose challenges.
The purpose of the MiCA regulation, which was phased in during 2024, is to harmonise legislation in the EU. It also aims to broaden the scope of regulation so that the risks arising from crypto assets can be managed more effectively and a level playing field created for the market. The MiCA regulation applies to issuers of crypto assets and providers of crypto asset services.
The intergovernmental Financial Action Task Force (FATF), established to prevent international money laundering and terrorist financing, has issued recommendations on crypto assets and many of them have been put into effect globally. They have been particularly effective in the fight against money laundering. However, decentralized finance business models have brought new challenges to the crypto asset markets because in decentralized services, the participants are not necessarily identified in the same manner as in centralised business models.
The EU’s fifth money laundering directive and the act on crypto asset service providers and crypto asset markets (laki kryptovarapalvelun tarjoajista ja kryptovaramarkkinoista; 402/2024) provide a regulatory framework for the phenomenon. Providers of crypto asset services must obtain an operating licence from the financial supervisory authorities, carry out customer due diligence procedures, monitor their customers and transactions, and notify the authorities of any suspicious business transactions. As a result of the new obligations, the quality and accuracy of the data collected from Finnish providers of crypto assets by the Finnish Tax Administration have improved considerably.
In the future, the Finnish Tax Administration will automatically receive information on crypto assets through international exchange of information on the basis of the DAC8 directive and the CARF reporting framework adopted by the OECD. At the same time, some of the customers now using Finnish crypto asset services may move to crypto asset service providers outside the regulatory sphere, which may make information less accessible in this respect.
Regulation of crypto assets is a new phenomenon and for this reason, the best practices and operating methods in the sector are still evolving. Due to the cross-border nature of crypto assets, international cooperation between the authorities is becoming increasingly important as information is shared more extensively between the authorities. In Finland, crypto asset actors are supervised by the Financial Supervisory Authority. The task of the Financial Intelligence Unit of the National Bureau of Investigation is to prevent, identify, uncover and investigate crimes involving crypto assets.
Act on crypto asset service providers and crypto asset markets
The act on crypto asset service providers and crypto asset markets entered into force in June 2024. The act implements Regulation (EU) 2023/1114 of the European Parliament and of the Council (hereafter the MiCA regulation), which will enter into force in stages.
Under Article 3 of the MiCA regulation, crypto asset means a digital representation of a value or of a right that is able to be transferred and stored electronically using distributed ledger technology or similar technology.
In the MiCA regulation, crypto assets are divided into three categories:
- asset-referenced tokens
- electronic money tokens
- other crypto assets
An asset-referenced tokens (ART) is used to maintain a stable value by referencing another value or right or a combination thereof, including one or more official currencies. An electronic money tokens (EMT) is used to maintain a stable value by referencing the value of one official currency. Other crypto assets include crypto assets that are not used to stabilise the value of crypto assets.