Recently Bitcoin (BTC) and other cryptocurrencies have become very popular as a new type of digital currency and as an investment. But bitcoin is not legal in all the countries, some have welcomed it, others prefer to be skeptical about it or have imposed strict regulations. In this blog post, we will delve into the question: Is Bitcoin legal in Nepal? In this article, we will discuss the regulatory landscape for cryptocurrency in Nepal and put forth our view about the current status.
Crypto in Nepal: Historical Context
Cryptocurrency is money that uses cryptography to secure transactions as well as to control the production of new units. However, given its recent history, it is best to consider Bitcoinaland coined as a concept in the early 2000s, but took off in a really big way with the creation in 2009 by an anonymous entity calling itself, Satoshi Nakamoto.
With cryptocurrencies in particular, Bitcoin, the idea was to develop a decentralized and peer-to-peer digital currency that could in theory replace traditional fiat currencies such as the Nepalese Rupee (NPR). Blockchain technology powers cryptocurrencies, which are a distributed ledger that records all transactions occurring on a network of computers that provide transparency to all the transacting parties involved.
When cryptocurrencies first came into being, governments all over the world were mixed with their reactions. But some of them were intrigued by the possibility of the technology to change finance and were looking at the technology as a chance for economic growth and innovation. Some were skeptical and fearful that cryptocurrencies were being used for illicit activities including money laundering and tax evasion without proper regulation.
When it comes to Nepal, the government's attitude towards cryptocurrencies was very first cautious. In 2017, Nepal Rastra Bank (NRB), the country's central bank, issued a notice that it was not against cryptocurrencies but against 'Bitcoin', or other similar cryptocurrencies being used in the country. However, the NRB raised concern about the lack of regulatory oversight, and worried about the risks involved in cryptocurrency transactions. The other measure meant to make the use of cryptocurrency in any financial transaction in Nepal impossible.
The Nepalese government has stayed mostly restrictive since then. And so they have continued to warn against the use of cryptocurrencies, and still have no clear regulatory framework for the use or exchange of them. Therefore the cryptocurrency market in Nepal was mostly underground with the little access and use.
Also, we should mention the fact that during the global attitude towards cryptocurrencies evolved over time. There are some countries that have accepted cryptocurrencies and set out frameworks for their use and some countries have put a ban on strong on cryptocurrencies. Naturally, the broader global debate around cryptocurrencies mirrors the same debate taking place all over the world – how to promote innovation and the potential benefits of digital currencies while ensuring that financial stability and consumer protection are safeguarded.
Initial Stance of Nepal's Regulatory Bodies
Nepal Rastra Bank (NRB) and other regulatory authorities have rushed to adopt a cautious and skeptical stance with cryptocurrencies initially. Unregulated nature of cryptocurrencies worried them with its potential risks and effects on the country’s financial stability. Here's a closer look at their initial stance and actions:
Nepal Rastra Bank (NRB): Because is Nepal's central bank, the principal financial and monetary policy authority, the NRB was cautious with cryptocurrencies. In August 2017, the NRB made a notice mentioning that Bitcoin and other cryptocurrencies should not be used in Nepal. They cited several reasons for their concerns:
- Lack of Regulation: The NRB expressed worries regarding lack of regulatory supervision and consumer protection that cryptocurrencies transactions.
- Financial Stability: The fear of the impact of cryptocurrencies on the financial stability of Nepal, as cryptocurrencies could be very volatile, worried them.
- Risk of Illicit Activities: Cryptocurrencies posed a threat to money laundering, fraud and tax evasion, according to the NRB, which was apprehensive of their potential use.
- Securities Board of Nepal (SEBON): The lack of regulation of crypto currencies was also a subject of concern expressed both by the Securities Board of Nepal, which is responsible for regulating securities markets, and by Finance Minister Yuba Raj Khatiwada. When SEBON received the NRB’s warning, it also said it would continue to enforce existing securities laws, which did not include cryptocurrencies.
- Government Authorities: Although the NRB and SEBON led the way in discussing what to do about crypto, other government agencies also stated that the prevailing situation surrounding crypto warranted caution. Different ministries of the government raised the risk of the unregulated digital currency.
In response to these concerns, Nepal's regulatory bodies did not only issue warnings but also took some practical steps to discourage cryptocurrency activities:
- Banking Restrictions: Upon the release of a notice by the NRB, some banks in Nepal stopped offering services for trading and using cryptocurrency. This made the use of cryptocurrency even more inaccessible for people in the country as well as further narrowed the scope of their application.
- Lack of Regulatory Framework: For cryptocurrency, Nepal did not even make any specific rules in regulatory framework, so digital currencies had grey status.
Legal Status of Bitcoin (BTC) in Nepal
Nepal was at its cautious and restrictive stance about cryptocurrencies in its past, fearing the value of the unregulated digital currency. It is however worth mentioning that the legal and regulatory framework from time to time changes and may therefore get changed, and it is advisable to verify with official sources or legal experts.
Let me give you a general idea as to what kind of implications legal status of Bitcoin can have in Nepal.
1. Ambiguous Legal Status: Bitcoin and other cryptocurrencies were legal gray in Nepal. No specific legislation had made the use of them either legally or illegally. The ambiguity, however, created confusion among the people and businesses who wanted to do crypto related activities without any legal clarity.
2. Limited Access to Financial Services: Because Nepal Rastra Bank (NRB) and commercial banks were not entirely on board with involving the cryptocurrency, people and businesses found it hard to access banking services for conducting crypto-related transactions. Banks had many restrictions to cryptocurrency, buying, selling, trading Bitcoin.
3. Risk of Enforcement Actions: While cryptocurrencies were not explicitly regulated by any particular laws, those dealing in cryptocurrencies — both individuals and businesses — risked regulatory and legal action. It encompassed potential investigations by regulatory authorities, or law enforcement agencies.
4. Potential for Change: There were changes the legal status of Bitcoin and cryptocurrencies in Nepal could experience, what with the government and regulatory bodies passing new laws, or even overhauling existing laws. Stakeholders in the cryptocurrency space needed to be updated with any happenings in Nepal's regulatory environment.
Things can be different over time, laws and regulations can differ and countries can introduce different approaches for cryptocurrencies. In Nepal it is advisable to the people and the businesses to engage them legal counsels and follow up latest news of regulatory agencies with respect to use and implications of Bitcoin and other cryptos in the country.
Challenges and Concerns
Challenges and concerns for the legal framework of Bitcoin in Nepal was, however, that the framework was lacking, comprehensive regulations. These challenges and concerns included:
Limited Access to Financial Services: There are numerous banks in Nepal that have been careful and refused to provide Bitcoin and cryptocurrency services. The ability for this individuals and businesses engaging in cryptocurrency trading or investing, to have limited access to banking facilities.
Risk of Unregulated Activities: Since there were little to no regulations, cryptocurrency activities like trading, and exchanges, were effectively out of the purview of authorities. The risks came from fraud, scams and unscrupulous practises in the cryptocurrency ecosystem.
Money Laundering and Illicit Activities: Pseudonymous nature of cryptocurrencies had given rise to concern about their potential use for money laundering, provided financing to terrorists, as well as other illicit activities. Circumstances also made it very difficult for authorities to monitor and limit these risks.
Taxation and Reporting: Meanwhile, there was still no clarification on the taxation of cryptocurrency transactions. Without clear guidelines, people and businesses were unable to clearly grasp how much tax they owed on crypto properties and transactions.
Consumer Protection: There was no consumer protection regulation in place and individuals who did activities related to cryptocurrency were prone to risks such as volatility on a market and possible loss.
Enforcement and Monitoring: For Nepalese authorities, making sure that the country's regulations are being followed or cryptocurrency activities are being monitored was a hard thing to do.
Future Outlook
Naturally the regulatory environment around Cryptocurrencies in Nepal was quite cautious and there was no specific "Cryptocurrency Act" in place. However, the future outlook for cryptocurrency regulations in Nepal is subject to a range of possibilities and could be influenced by several factors:
1. Potential Regulatory Developments:
Amendments or New Legislation: Nepal may pass specific legislation or amend existing financial regulations in the nation to specify on the legal status and legal framework of cryptocurrencies. This might provide some answers to the current ambiguities and challenges of cryptocurrency use.
International Best Practices: Nepal will consider international best practices and regulatory frameworks subscribed by other nations as it comes up with its own strategy in dealing with cryptocurrency rules. Shaping Nepal's regulations may include collaboration with international regulatory bodies, as well as neighboring countries.
Financial Innovation: Nepal is recognizing the potential of blockchain technology and cryptocurrencies and could explore how it might help develop new fin-tech and blockchain policy while maintaining necessary consumer protection and financial stability safeguards.
2. Global Trends:
International Regulatory Cooperation: Like many other countries, Nepal could get increasingly involved in international regulatory cooperation in addressing cross border cryptography challenges. This could instead pave the way for a more coordinated global effort to regulate cryptocurrency.
Institutional Adoption: Since institutional investors and financial institutions are coming into play in cryptocurrencies, Nepal’s outlook may also follow. The more legitimacy and institutional adoption that cryptocurrencies get, the more likely people will take a better view of cryptocurrencies.
CBDCs (Central Bank Digital Currencies): With several central banks in different countries researching the creation of their own digital currencies (CBDCs), Nepal needs to think about the CBDCs effects on the country's financial system and the possibility of CBDCs cohabiting with cryptocurrencies.
Consumer Demand: If Nepalese consumers and businesses are demanding significant increases in cryptocurrency use, it may be applied for pressure on regulatory authorities to clarify and facilitate the regulation.
Global Economic Events: That is one of the reasons why cryptocurrencies often get attention at times of economic uncertainty and financial crises. The attitude of the Nepalese towards the cryptocurrencies as safe haven assets or speculative investments might encourage their Regulator to adopt regulatory stance towards the cryptocurrencies.
Regulatory changes also don't come overnight the cryptocurrency landscape is dynamic and the regulatory steps can react quickly to shifts in the trends and events. They should therefore keep themselves informed about the latest regulatory development and seek professional legal advice, if they want to explore businesses and individuals with cryptocurrencies in the Nepali nation.
Finally, though the Cryptocurrency Act of 2023 may have influenced how Bitcoin is legally viewed in Nepal, we haven’t achieved the status akin to that of Ethereum, despite advances. This legislation has given a path to cryptocurrency activities, but it also has its bad and the bad comes with a legitimate work! Nepal is a country in the blockchain and cryptocurrency space and has a growing number of individuals who are either using and exchanging cryptocurrency or are merchants accepting it as a form of payment but many of them are unaware of the latest laws and regulations in this booming sector.