The Legislative Landscape of Cryptocurrencies in Kyrgyzstan Prior to 2024

In the years leading up to 2024, Kyrgyzstan experienced a significant evolution in its approach to regulating cryptocurrencies. The nation, recognizing the growing popularity of blockchain technologies and cryptocurrencies, embarked on developing and introducing laws and instruments to regulate these emerging technologies.

The Law on Virtual Assets

One of the cornerstone developments in Kyrgyzstan’s legislative framework for cryptocurrencies was the enactment of the law “On Virtual Assets” in August 2022. This law played a pivotal role in defining clearer rules for the cryptocurrency market in Kyrgyzstan, along with setting specific obligations and requirements for its participants. The law established a virtual asset as a set of data in electronic digital form that possesses value. These assets could either be independent objects of civil law or means to certify property and non-property rights. However, it’s important to note that virtual assets were not recognized as legal tender within Kyrgyzstan, prohibiting transactions in cryptocurrencies for goods and services within the country​​.

Regulations and Compliance for Virtual Asset Market Participants

The law encompassed a broad range of activities related to virtual assets. It allowed any person or legal entity to carry out activities with virtual assets, including their possession, usage, disposal, exchange, purchase, or sale. Legal entities were also permitted to issue and place their own virtual assets both within Kyrgyzstan and abroad. However, these activities mandated strict compliance, including reporting on transactions involving virtual assets​​.

Mining Regulations

Specific attention was given to the regulation of cryptocurrency mining. Miners were required to register, own the necessary hardware, have an active virtual wallet, and ensure an adequate quality power supply system. Additionally, miners were subject to an increased electricity rate, reflecting the government’s intent to regulate the energy-intensive nature of crypto mining activities​​.

New Rules for Cryptocurrency Exchanges and Banks

In September, following the law on virtual assets, the government adopted additional instruments that set specific rules for cryptocurrency market players, particularly for cryptocurrency exchanges. These rules included requirements for exchanges to operate as open joint-stock companies, carry out operations as public companies, and register with the Single State Register of cryptocurrency exchanges of the Kyrgyz Republic. Investment funds were allowed to invest in cryptocurrencies, but such investments were capped at 20% of the fund’s net assets.

Furthermore, the National Bank developed procedures for commercial banks providing services related to virtual assets. These services included the transfer, storage, management, control, and provision of financial services related to the initial placement and sale of the issuer’s virtual assets. Banks were required to obtain permits for these activities from the National Bank of the Kyrgyz Republic after submitting a comprehensive package of documents and establishing internal mechanisms for such activities​​.

Conclusion

As of the years leading up to 2024, Kyrgyzstan’s legislative approach to cryptocurrencies indicated a shift towards more structured regulation. The government’s efforts to establish a comprehensive legal framework for virtual assets, including specific rules for cryptocurrency exchanges and banks, reflected a balancing act between fostering technological innovation and ensuring financial stability and compliance within the digital asset space. This evolving regulatory landscape demonstrated Kyrgyzstan’s recognition of the importance and potential of cryptocurrencies in its economy and the broader financial sector.