Cryptocurrency Regulation in Luxembourg Prior to 2024

Luxembourg, known for its progressive stance in the financial sector, approached cryptocurrency regulation with a similarly forward-thinking attitude prior to 2024. While cryptocurrencies were not considered legal tender in Luxembourg, the country’s legislative approach was notably permissive and focused on integrating these new technologies into the financial system with appropriate oversight.

In 2018, the Financial Sector Monitoring Commission of Luxembourg issued a warning about the risks involved in investing in cryptocurrencies. Despite these risks, on March 1, 2019, Luxembourg implemented a law that recognized tokenized securities as having the same legal status as traditional securities. This law allowed for the transfer of securities via distributed ledger technology, signaling a significant step towards the integration of blockchain technology into the traditional financial system. For tax purposes, cryptocurrencies were treated not as actual currencies but as intangible assets​​.

The government’s legislative attitude towards cryptocurrencies was generally progressive. Finance Minister Pierre Gramegna suggested that, given their widespread use, cryptocurrencies should be accepted as a means of payment for goods and services in Luxembourg. Cryptocurrencies were thus considered intangible assets for tax purposes, and their use as a means of payment did not affect the nature of income, aligning with Luxembourger tax rules. In 2018, the Commission de Surveillance du Secteur Financier (CSSF) issued a warning about the volatility of cryptocurrencies and the associated risks of investing in Initial Coin Offerings (ICOs). Despite this warning, the progressive approach to cryptocurrency in Luxembourg endured​​.

Cryptocurrency exchanges or virtual currency platforms in Luxembourg were regulated by the CSSF. New crypto businesses, such as service providers or intermediaries receiving or transferring cryptocurrencies, were required to obtain a payments institution license to begin trading. These licenses entailed Anti-Money Laundering (AML) and Counter-Terrorist Financing (CFT) reporting obligations under Luxembourg’s statutes. The first crypto license in Luxembourg was granted in 2016 to Bitstamp. In 2020, amendments to Luxembourg’s AML/CFT laws introduced new registration and governance requirements for cryptocurrency and virtual assets service providers (VASPs), further clarifying the legal definition of cryptocurrencies, VASPs, virtual assets, and related entities for regulatory purposes​​.

While there were no specific legislative steps on the radar for cryptocurrency regulation in Luxembourg as of 2022, further crypto legislation was expected, especially given the introduction of the EU’s 5th and 6th Anti-Money Laundering Directives (5AMLD and 6AMLD) that came into effect in December 2020. Luxembourg aimed to align its regulations with the European Securities and Markets Authority (ESMA) while continuing to advance its token and blockchain agendas​​.

In summary, Luxembourg’s approach to cryptocurrency regulation prior to 2024 was characterized by a blend of caution regarding the risks associated with cryptocurrencies and a progressive attitude towards their integration into the financial system. The country’s efforts to regulate and legitimize cryptocurrency activities, particularly through the recognition of tokenized securities and the regulation of cryptocurrency exchanges, reflected its commitment to balancing innovation with financial security and compliance.