Bitcoin for your thoughts? How about a Rembrandt?

Bitcoin turns into art as Sweden rejects creative currency

Bitcoin is making an art critic out of the Swedish taxman.

The largest Nordic economy is set to reject Bitcoin and its competitors as a currency and instead give the software the same tax treatment it would an antique Persian rug or a painting by Andy Warhol.

“Currencies are traditionally tied to a central bank or a geographic area,” Olof Wallin, an official at the Swedish Tax Agency who’s drafting rules for Bitcoin and the programmers who generate it, said in an interview. The Stockholm-based agency will probably “view Bitcoins as what we call another asset -- just like art or antiques.”

Since its 2008 creation, Bitcoin has challenged assumptions of what money is. It’s also captured the attention of regulators, who are struggling to keep up as people use the software to pay for everything from university tuition to cups of coffee to senate campaign donations.

Sweden is leaning toward an interpretation of Bitcoin that will allow the nation to charge capital gains taxes on any transactions using the software. The move would place Bitcoin in an asset class that includes antiques, jewelry, stamps and copyrights.

EBA Warning

Across the Nordic region, where stable AAA governments have been at the forefront in tightening bank regulation, authorities are grappling with the concept of Bitcoin. In Norway, the tax department has decided to label it a taxable asset. Finland plans to treat it as a commodity while Danish regulators are drafting a proposal for lawmakers in an effort to protect consumers and businesses from losses.

Sweden’s central bank raised concerns in June that Bitcoin and its competitors may pose risks to those using it as a payment method. The European Banking Authority echoed those concerns in December, warning that people using the software do so at their own risk.

This month Sweden’s biggest Bitcoin exchange, Kapiton, was reported to the police and the National Board for Consumer Disputes after a number of users alleged their money had disappeared.

Kapiton’s founder -- referred to on the website only as Sebastian -- published a statement on Jan. 18 apologizing for “recent problems” and assuring users that no client assets had disappeared. The site is working to match orders with accounts, Sebastian said.

Money Laundering

Financial Markets Minister Peter Norman said this week virtual currencies risk becoming tools for criminal activity such as money laundering and the financing of terrorism.

“If we end up with artificial or virtual currencies, there is a risk that they could slip through the cracks and that would be serious,” Norman said in an interview. “I don’t think Bitcoins are at that stage today, but if they were to grow into a big virtual currency that’s being used a lot, that would result in risks that we don’t want.”

Globally, Bitcoin has had a mixed reception. China’s central bank banned lenders from handling the virtual money while the U.S. Internal Revenue Service hasn’t offered guidance beyond saying it’s working on the issue and that it has been monitoring digital currencies since 2007.

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