Denmark might ban unregulated Bitcoin wallets

Denmark’s recent regulatory proposal could result in the ban of self-custody Bitcoin wallets and other decentralized finance (DeFi) interfaces. This comes as the Danish Financial Supervisory Authority (DFSA) announced plans to ban all unregulated wallets following concerns about activities on unregulated cryptocurrency platforms in the country. 

Also read: Bitstamp delists Euro Tether (EURT) as MiCA rules are rolled out

Although the DFSA has received criticism for its proposition, the regulator argues that the move is part of its efforts to ensure crypto transactions are conducted within a regulated framework. The DFSA sees this as “addressing a coverage gap” that leaves DeFi unregulated.

Denmark tightens screws on the sector 

If implemented, this new rule will contradict Markets in Crypto Assets (MiCA) guidelines and the US’ treatment of BTC self-custody wallets.  The MiCA regulations are effective from December 30, 2024. According to Ambcrypto, the MiCA regulations do not apply to DeFi. Notably, the MiCA regulations also have been criticized for stifling innovation.

Also read: Crypto executive warns MiCA regulation will stifle EU crypto companies competitiveness

According to the DFSA, all players, including interface developers, mobile app developers, and all other service providers, should be regulated to operate in the country. The new guidelines stipulate that all trading platforms should obtain regulatory approval in the country before they can start offering Bitcoin wallets, DeFi interfaces, and any other crypto-related products.

The European Banking Authority (EBA) earlier this month released a draft of technical standards under MiCA regulation. Some of the amendments include revised own funds requirements and tight recovery plans for issuers of crypto assets with a focus on stablecoins that are pegged to the US dollar.

DENMARK TO ABOUT TO BAN BITCOIN WALLETS

We have finally reached this point.

In the latest DeFi guidance of Danish FSA, the regulator goes too far: The guidance tries to capture everything in crypto regulation, including your Bitcoin wallet, using "interface" argument. DFSA says… pic.twitter.com/F7jFuLhNqC

— Mikko Ohtamaa (@moo9000) June 26, 2024

The proposal faces criticism

Crypto enthusiast Mikko Ohtamaa has expressed concerns over the proposed regulations, arguing that they may hinder innovation. Ohtamaa described DFSA’s move as overregulation, although it might be good.

“Trying to force everyone to be a regulated intermediate in a peer-to-peer world sounds cool, but you might as well be honest with your talking points and say ‘in reality, we want to ban all cryptocurrencies, we are just sneaky about it’.”

Ohtamaa.

While Estonia reportedly implemented the same rules on self-custodial wallets, Ohtamaa maintained this could be bad for the sector in Denmark. “What this means is that no one can offer Bitcoin wallets, DEX interfaces, or anything that touches a token to Danish anymore because they would need to be regulated in Denmark.”

In the US, the crypto infrastructure bill FIT21 Act “opted to study DeFi, like MiCA, instead of regulating it.” To this end, the DFSA is seeking feedback from stakeholders on the proposals.

Cryptopolitan reporting by Enacy Mapakame