Like the look of Bitcoins? EU says you're stupid
The European Banking Authority (EBA) have followed the Banks of France and China in deciding to tell people that Bitcoins (and other virtual currencies) are a Very Bad Idea indeed, garnering no protection from the likes of the EBA in case of loss or theft. The EBA shook it's head mournfully and said there was no protection or compensation for people whose "digital wallets" are hacked, a transfer of virtual money goes wrong or a platform is shut, as happens frequently as new currencies come and go.
While the EBA stopped just short of telling consumers straight out not to use online currency markets, it warned that customers who end up out of pocket won’t benefit from a banking safety net like the compensation given to deposit holders when a mainstream EU bank goes bust. Just like in Cyprus and Spain…
"Currently, no specific regulatory protections exist in the EU that would protect consumers from financial losses if a platform that exchanges or holds virtual currencies fails or goes out of business," EBA said in a statement.
"Cases have been reported of consumers losing significant amounts of virtual currency, with little prospect of having it returned. Also, when using virtual currency for commercial transactions, consumers are not protected by any refund rights under EU law."
There are about 100 virtual currencies, with new ones appearing every five minutes. Bitcoin is by far the best known and their value topped $1,000 (£1,630) last month. And we’ve all heard the tale of the bloke who chucked his Bitcoins not knowing their worth.
The EBA is currently considering whether it feels virtual currencies can or ought to be regulated. It could go so far as to to ban them, using its current powers, although whether this could actually be achieved in practice is another matter. Bitcoin sellers might just set up on street corners, hawking their products to impressionable young teens…
But for some, Bitcoins are a way to make (serious) money- someone who obtained Bitcoins while they were free, or at the cost of a few pennies, is now sitting on a sizeable nest egg. Not that the EBA can be happy for these people either- it warns that these people could be facing hefty tax bills.
The tax treatment of Bitcoins is as-yet undecided across Europe, with much of the debate surrounding whether the virtual currency is classed as a currency or a digital product or a voucher for cash. In the UK, currency is chargeable to capital gains tax, but exempt from VAT; if the Bitcoin is an intangible asset it is still chargeable to capital gains tax on the profit, but not necessarily liable for VAT.
Last month, HMRC were on record as stating that Bitcoins are vouchers, not currency, and those who trade in them could be liable for 20% VAT; however, following representation from various bodies, and complaints by Bitcoins traders who threatened to move their Bitcoin trading offshore, HMRC have now apparently agreed that VAT probably isn’t due after all. But they might change their mind again. Your guess is as good as mine.