The data gathered by the Central Bank of Sweden shows that the usage of physical cash in the country had been continuously declining between 2010 and 2020, dwindling to a mere 9% by the decade's end. This trend, coupled with Sweden's inclusion among the top 10 most technologically advanced nations in 2023, typically indicates a ground suitable for the growing acceptance of crypto and blockchain. While Sweden strives to position itself as a hub for innovations in finance technologies, the degree of this transformation depends significantly on the legislative landscape which concerns the crypto industry.

This piece analyzes the evolution of Swedish regulation in relation to the crypto industry and evaluates the current stage of the technologies’ acceptance.

History of crypto in Sweden

During the initial stages of the blockchain technologies’ development, the operations of the crypto companies were regulated by the broad provisions of the anti-money laundering laws. These entities were mandated to undergo registration with the authorities and adhere to the existing laws.

It is important to mention the case when on February 2, 2016, the Swedish Supreme Administrative Court ruled that BTC trade would not be subject to value-added tax (VAT). This decision stemmed from a case where the Swedish Tax Authority challenged a preliminary decision by the Swedish Revenue Law Commission, which initially stated that the sale of Bitcoin by individuals should be exempt from VAT. To reach this conclusion, the Swedish Supreme Administrative Court had previously sought guidance from the European Court of Justice (ECJ), which, in response, determined that buying and selling Bitcoin should be classified as a service exempt from VAT. During the same legal proceeding, it was decided that BTC essentially performs the same way as legal tender, and thus should be treated the same way, according to the principle of fiscal neutrality, i.e. as a currency.

A significant piece of national regulation appeared in May of 2018 when the Currency Exchange and Other Financial Activities Act was adopted. This new legislation mandated that firms aiming to offer crypto-related services register with the financial regulator, the Swedish Financial Supervisory Authority (SFSA).

In 2019, Sweden's Central Bank (called Riksbank) initiated the creation of a Central Bank Digital Currency (CBDC) known as the "e-krona." This currency was meant to be used together with traditional cash, not to replace it. Riksbank partnered with the consulting firm Accenture to advance the project. Since 2022, the e-krona initiative is in its third testing phase, focused on analyzing the blockchain solution from a technical perspective.

Since January 1, 2020, companies that offer the exchange of virtual currencies are covered by the Swedish money laundering regulations and are required to register as financial institutions according to the Act on Currency Exchange And Other Financial Activities. This is the result of the governmental body, the Financial Supervisory Authority, defining Bitcoin and other virtual currencies as a means of payment. What is more, new changes to the Swedish Currency Exchange Act (SCEA) came into effect, obligating crypto companies to implement Know-Your-Customer rules.

In March 2020, Riksbank underlined that cryptocurrencies have potential benefits. In particular, it has requested the country’s parliament to allocate an annual budget of 30 mln krona (equivalent to around $2.8 mln) for a duration of 5 years, with the aim of establishing Sweden as a hub for innovation related to digital currencies. In 2021, Stockholm became home to the Bank for International Settlements (BIS) Innovation Hub Nordic Centre. BIS is an international organization for Central Banks of a number of states, which has chosen improving payment systems and CBDC development as its priorities for 2023.

At the same time, other governmental structures, the SFSA, and the Swedish Environmental Protection Agency raised some concerns about crypto in November 2021. They established their negative stance on mining, in particular, due to the negative impact on the environment and increased power consumption. Despite the agencies’ call for action, no additional legislation targeting mining appeared.

Sweden, being a member state of the European Union, is working on adopting the Markets in Crypto Assets (MiCA) regulation at the moment. MiCA is a legislative framework designed to cover all 27 members and is supposed to serve as a comprehensive and all-encompassing law for all matters related to cryptocurrencies.

MiCA has been in development since 2021 and is set to become effective in two phases: July 2024 for certain rules and January 2025 for the remaining provisions. This phased approach aims to facilitate a smoother transition to the new regulatory framework. MiCA's primary objectives include providing legal clarity to cryptocurrency-related businesses, attracting investments, and fostering innovation. Some key aspects of this document include:

Crypto firms will be required to get authorized by any of the Union's national financial regulators. Publishing clear documents about the companies’ activities and informing potential customers about the risks will be obligatory. Compliance offers a "passport" that will allow the firms to legally function everywhere in the EU and provides a sense of regulatory certainty. Non-compliant firms risk penalties.
Stablecoins must have suitable reserves as well as governance mechanisms, algorithmic stablecoins are prohibited.
Environmental regulations have not been stated yet. Initially, some authors suggested banning the proof-of-work entirely, but this idea was eventually rejected. However, some technical limitations that affect the environment will be included.

What is more, alongside MiCA, Sweden has also embraced another segment of the digital finance package regulations from the European Commission. This component, initiated as a pilot program in May of 2022, is tailored for market infrastructures built upon distributed ledger technology. It encompasses a set of harmonized measures scheduled for implementation by 2024. They revolve around electronic identification and enhancing trust in electronic transactions throughout the EU. The main aim of this framework, as mentioned by its authors, is to streamline the legal landscape for member states concerning digital identities, and measures against illegal activities (e.g. financial crimes and financing terrorism).

Apart from that, the EU has a broader agenda, including standardization and rendering the documents that concern the EU financial services legislation in machine-readable formats. This is supposed to help member states and financial regulators to disclose information, and promote the usage of innovative technologies, which will promote establishing an open finance framework. Sweden is taking an active role in the initiative, which has its focus on fighting against the challenges and risks related to digital transformation. The country is concerned with the operational resilience of the financial system of the Union in digital matters. These issues became crucial given the pace of technology’s evolution and the growing presence of private companies in the finance sector.

When we analyze the stance of the judicial system of Sweden on crypto-related topics, we see that as the crypto adoption progresses, Swedish courts are tasked with interpreting the existing legislation in the new circumstances of the digital age.

One such case, dated early 2023, involved the country’s Administrative Court of Appeal and explored the application of Swedish financial laws to digital assets. The court concluded that digital assets possess economic value and can be managed indefinitely, satisfying the criteria stated in Swedish foundation legislation.

Another noteworthy court case was about the usage of Bitcoin as a payment means by a Swedish company. The court decided that the cryptocurrency met the necessary criteria for being utilized this way. The court put emphasis on the economic value of BTC and its status as a valid asset for accounting purposes.

These instances illustrate Sweden's willingness to adapt its legal framework to the evolving crypto landscape.

The current status of crypto in Sweden

At the moment, Sweden is going through a noteworthy transformation in the realm of cryptocurrency regulation, propelled by the introduction of key European Union regulations. Most importantly, this is adhering to the EU's new MiCA regulation and the market infrastructure framework that we have mentioned above.

We should point out that the shift in Sweden's approach to crypto regulation presents a paradox. In 2017, a warning was issued by the SFSA stating that most Initial Coin Offerings (ICOs) are unreliable and not regulated enough, seeing ICOs broadly as the launch of new cryptocurrencies or digital assets which was seen at that time by many as quite a pessimistic view on the crypto sphere in general by the country’s government. At the same time, despite the cautionary stance, Sweden started actively testing its e-krona initiative. Furthermore, even the pension fund called AP7, which is considered to be the government's main alternative to private retirement savings, has indirect exposure to Bitcoin. This exposure arises from investments made by companies within the fund's portfolio, reflecting a more nuanced and evolving approach to the crypto sphere in Sweden.

To see the current status of cryptocurrencies in the country, it is also vital to know the attitude of the Swedish people toward them. According to the research done in 2021, it is characterized by a strong emphasis on individual autonomy and ideological principles. Swedes appear to value the intrinsic worth of autonomy and decentralization brought by blockchain. They seem to view these technological advancements through an ethical and ideological lens, seeing them as a way to achieve the "absolute autonomy" of assets which is viewed in a positive way.

Cryptocurrency taxation in Sweden

When it comes to cryptocurrencies, Sweden has firmly positioned them as taxable financial assets. This translates to a strict mandate for Swedish citizens to report every aspect of their crypto activities to the national tax authority, Skatteverket.

To comply with the current tax obligations, cryptocurrency owners are required to maintain comprehensive records covering all facets of their transactions. This encompasses details like purchase and sale prices of their digital assets, extending to various activities within the crypto realm, including expenditures, trades, and lending.

Profits and losses stemming from cryptocurrency trading fall under the purview of capital gains taxes, which are uniformly levied at a fixed rate of 30%. The tax code does offer some relief, permitting deductions of losses from cryptocurrency trading up to 70%.

However, Swedish tax law carves a distinction between short-term trading and long-term cryptocurrency holdings. Gains from extended cryptocurrency ownership are categorized as income from business operations and are subject to variable tax rates ranging from 20.6% to 22%. This taxation structure incentivizes traders to hold onto their cryptocurrency assets for at least a year to mitigate their tax liabilities.

In contrast to the flat capital gains tax rate, Sweden employs a progressive income tax system contingent on one's earnings. The country features two income tax brackets: one applicable to individuals earning less than 523,200 Swedish Kronor (equivalent to approximately $48,000) annually, and another bracket for higher earners. In the lower-income category, individuals face a 32% municipal income tax, with no national income tax imposed. Conversely, those falling within the higher-income bracket are subject to a 32% municipal income tax and a 20% national income tax, culminating in a total income tax rate of 52%. This places Sweden among the nations with the highest tax burdens globally.

To deter tax evasion, Swedish tax authorities are vigilant, enforcing penalties and heightened tax obligations for individuals who fail to accurately report their cryptocurrency transactions. Notably, a striking example is the case of Swedish cryptocurrency investor Linus Dunkers, who found himself confronted with a substantial 300% tax bill on his cryptocurrency profits and a significant fine amounting to $1 million.

Swedish crypto companies

There are several crypto- and blockchain-related enterprises from Sweden, here are some examples:

12iD. This identity management firm deals with cybersecurity, biometric verification, artificial intelligence, etc. 12iD’s blockchain uses zero-knowledge proof technologies, as well as elliptic-curve cryptography. This allows them to ensure data privacy for their customers.
Vinter. This Stockholm-based company is an index provider for cryptocurrencies. Vinter prides itself on creating the first crypto indexes in Northern Europe to have been approved by the European financial regulator ESMA.
Chromaway. This Swedish company specializes in developing various business solutions using relational blockchain technology. This type of blockchain combines the capabilities of more traditional databases with the blockchain's records immutability. Their open-source relational blockchain Postchain was designed to work in conjunction with database systems, enabling SQL developers to work with the company’s blockchain. Chromia, another product by Chromaway, leverages Postchain as a service and enhances it with decentralized management features. This DApp platform is designed for ease of use, development, and scalability, making it suitable for a wide range of users including big corporations and governments. Additionally, Chromaway introduces Esplix, which is a private, client-side validated smart contract system.

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