The Legislative Landscape for Cryptocurrencies in Sweden Prior to 2024

Conflicting Perspectives and Regulations

Sweden’s legal framework for cryptocurrencies prior to 2024 was marked by conflicting laws and contradictory policies. The Swedish Financial Supervisory Authority (SFSA) and Finansinspektionen (FI) warned about the risks and low consumer protections associated with cryptocurrency investments, citing difficulties in valuing cryptocurrencies credibly due to their lack of intrinsic value. These warnings underscored concerns about the legitimacy and security of Initial Coin Offerings (ICOs) and their regulatory status, which was virtually non-existent​​.

Government’s Recognition of Cryptocurrency Benefits

In contrast to these warnings, the Swedish central bank, Riksbank, recognized the potential benefits of cryptocurrencies. Riksbank proposed significant investments to transform Sweden into a digital currency innovation hub and initiated a Central Bank Digital Currency (CBDC) project for an “e-krona.” This move towards embracing digital currency innovation directly contradicted the cautious stance of other government authorities​​.

Public Adoption and Government Investments

Despite the legal and regulatory ambiguities, digital currency was widely accepted by the Swedish public, with Sweden being one of the world’s most cashless societies. Interestingly, the Swedish government indirectly invested in Bitcoin through the state’s pension plan, “State Pension Fund AP7,” further highlighting the contradiction between the government’s warnings and its actions​​.

Anti-Money Laundering (AML) Amendments

Effective January 1, 2020, amendments to the Swedish Currency Exchange Act (SCEA) expanded its scope to include custodian wallet providers and virtual currency exchange services. These entities were required to comply with Sweden’s anti-money laundering provisions, which were stricter than typical European AML regulations. The amendments included know-your-customer (KYC) regulations and defined virtual currency broadly enough to encompass currency tokens and some investment tokens​​​​.

MiFID II and Cryptocurrency Classification

In Sweden, there were no specific statutes addressing cryptocurrencies. However, cryptocurrencies could potentially fall under the general legal framework, such as the Markets in Financial Instruments Directive II (MiFID II), which regulates Europe’s financial markets. Cryptocurrencies classified as “transferable securities” would be subject to MiFID II regulations​​.

Taxation of Cryptocurrency Transactions

In the realm of taxation, cryptocurrencies like Bitcoin were considered taxable financial instruments in Sweden. All cryptocurrency transactions had to be reported to the Swedish Tax Agency (Skattevert), with profits and losses from trading subject to capital gains taxes. The tax law differentiated between short-term trading and long-term holding of cryptocurrencies, applying different tax rates accordingly. Sweden’s progressive income tax system also influenced how cryptocurrency profits were taxed, making Sweden one of the highest tax-paying countries globally​​​​.

In summary, Sweden’s approach to cryptocurrency regulation prior to 2024 was characterized by a mix of caution and innovation. While some government authorities warned of the risks associated with cryptocurrencies, others embraced their potential, leading to a complex and sometimes contradictory regulatory environment. The introduction of AML amendments and taxation policies for cryptocurrencies indicated steps towards more structured regulation, even as broader legal definitions and public adoption patterns continued to evolve.