Should cryptocurrencies really be regulated?

While public attention is focused on the SEC, the U.S. securities regulator responsible for reviewing applications to authorize the creation of cryptocurrency exchange-traded funds (ETFs), the French Court of Auditors is drawing attention to the need to strengthen oversight in the field of cryptoassets.

Across the eurozone, the cryptoasset market was valued at more than $1,500 billion at the end of 2023, with an estimated user base of approximately 14 million.

The Court of Auditors emphasizes that, although cryptoassets currently play a marginal role in the financing of the economy, their growth poses challenges in terms of monitoring financial flows and ensuring stability. In France and Europe, public authorities have adapted regulations to provide a framework for these digital assets.

In France, regulation began in 2019 with the introduction of a mandatory registration requirement for digital asset service providers (PSAN) by the Autorité des marchés financiers (AMF). Between 2020 and 2023, 90 entities were registered, but only one applied for optional authorization, which imposes prudential rules for better risk management.

Despite these initiatives, the Ministry of the Economy is struggling to deal with operators offering services in France without being registered, and enforcement resources are insufficient due to inconsistent cooperation among member states.

Aware of these risks, French authorities helped strengthen regulations at the European level through the European MiCA (Markets in Cryptoassets) Regulation, adopted in April 2023. Modeled after the French system, it makes rules that were previously subject to optional authorization in France mandatory across the European Union.

In anticipation of MiCA’s entry into force at the end of 2024, the French Parliament has mandated the implementation of a “enhanced” registration requirement for the provision of digital asset services in France, effective January 1, 2024.

These regulatory changes will expand the supervisory responsibilities of the AMF and the Prudential Supervision and Resolution Authority (ACPR). These authorities will need to conduct more in-depth audits within tighter timeframes, while also contributing to the European Commission’s work on various aspects related to cryptoassets.

However, the Court of Auditors laments the lack of data from the tax authorities on cryptocurrency holdings and the income they generate. For the year 2021, only 20,000 taxpayers reported capital gains from the sale of cryptoassets to the tax authorities, totaling approximately 400 million euros.

With regard to non-professional transactions, France applies a tax regime that takes effect upon the transfer of cryptoassets out of the cryptoasset sphere. Only the sale of digital assets in exchange for fiat currencies, goods, or services is subject to taxation. Although this regime is simplified, it does not sufficiently account for the use of cryptocurrencies as a means of payment.

The Court of Auditors believes that this framework should evolve, particularly to account for the growing diversity of NFTs, some of which may no longer be considered financial assets in the future.

Finally, the revision of European standards on tax cooperation among member states, scheduled to take effect in January 2026, should improve transparency for tax authorities.