Cryptocurrency Regulation in Kazakhstan Prior to 2024

Kazakhstan’s approach to cryptocurrency regulation leading up to 2024 is a unique case of a country strategically positioning itself as a global leader in cryptocurrency operations while navigating the complexities of this emerging market.

Emergence as a Global Cryptocurrency Leader

Kazakhstan experienced a significant surge in cryptocurrency operations, becoming one of the top global leaders in cryptocurrency mining. This rise was partly due to the government’s policy of incentivizing cryptocurrency miners to establish operations in the country. By 2020, Kazakhstan accounted for 6.17% of the world’s cryptocurrency mining, ranking fourth globally. The country hosted several significant mining operations and was expected to see a substantial increase in cryptocurrency investments and mining activities​

​Governmental Policies and Legalization

Kazakhstan’s government took proactive steps to facilitate the growth of the cryptocurrency sector. In July 2020, the country officially recognized Bitcoin as a digital asset, comparable to any other commodity. This recognition was accompanied by the legalization of cryptocurrency mining within its borders. The Astana International Financial Centre (AIFC) played a crucial role in this process, becoming a hub for crypto mining companies. The AIFC’s Fintech rules allowed the establishment of crypto exchanges and other regulated activities based on digital assets​

​​

​Regulatory Developments and Taxation

Kazakhstan established a legal regime for mining and cryptocurrency, with significant improvements in regulatory regimes for these sectors. To accommodate the growing demand from mining companies, amendments were made to the Tax Code in 2021, introducing a tax for digital mining at a rate of 1 tenge per 1 kW/h, effective from January 1, 2022. Additionally, companies involved in digital mining had to comply with specific regulatory requirements, such as obtaining permission for the import of encryption equipment and notifying relevant ministries about their planned activities​

​Characterization of Cryptocurrency and Future Prospects

Despite these advancements, Kazakhstani legislation characterized cryptocurrency as a form of property, not as a financial instrument or means of payment, and prohibited the issue and circulation of cryptocurrency within the country. However, there were indications that this stance could evolve. The AIFC established a special tax regime for Bitcoin mining activities, offering significant incentives for data centers operating under its jurisdiction​

​​

Integration with Banking and Pilot Projects

One of the significant steps towards integrating cryptocurrencies into the mainstream financial system was the collaboration between crypto exchanges registered in the AIFC and local banks. This initiative aimed to enable clients to officially work with cryptocurrency, marking a shift towards a more formal and regulated cryptocurrency environment. The AIFC also embarked on a pilot project with second-tier banks to assess and evaluate the benefits and risks of digital assets, suggesting that the strict regulations on the circulation of digital currency in Kazakhstan might be relaxed or even lifted after the project’s successful completion​

Conclusion

In summary, Kazakhstan’s legislative landscape for cryptocurrencies up to 2023 illustrates a strategic embrace of digital mining and a gradual move towards integrating cryptocurrencies into its economic framework. The country’s efforts to establish itself as a leading cryptocurrency mining destination, combined with evolving legal and regulatory measures, reflect a forward-thinking approach to the opportunities presented by the digital asset market.