Kyrgyzstan has already missed two previous crypto booms.
In 2017–2018, when thousands of ICOs (initial coin offerings — unregulated IPOs that collected cryptocurrencies for crypto projects) occurred worldwide, and advanced countries raced to create legislation to attract crypto projects, Kyrgyzstan remained inactive. In February 2018, the government of Sapar Isakov received a detailed report from Swiss law firm John Tiner & Partners on the relationship between blockchain economy realities and Kyrgyz legislation. However, before they could take action, the government was swept away in a political power struggle.
In summer 2020, as the crypto world focused on launching decentralized finance (DeFi) projects and investing in staking and farming, Kyrgyz authorities were preoccupied with addressing the Covid epidemic. Then, in October, the masses ousted President Jeenbekov. For the newly elected leaders, regulating the crypto-economy did not become a priority for quite some time.
It wasn’t until January 2022 that legislation was enacted to legalize the crypto business and place it under the state’s regulatory and tax control.
Kyrgyz Crypto Law
FATF recommendations served as a model for regulating the crypto business in Kyrgyzstan, resulting in a fairly typical law compared to similar regulations in other countries.
Law No. 12 of January 21, 2022 «On Virtual Assets» legalizes concepts such as «blockchain,» «virtual assets,» «mining,» and even «stablecoin.» It establishes that virtual assets can be either independent objects of civil law or means of certifying property or non-property rights.
The private circulation of virtual assets is unrestricted, both domestically and across borders. The law states that if a virtual asset is backed by something, its turnover is subject to the same restrictions as the collateral asset.
State control and a permit regime are established for commercial activities in the virtual asset field.
The regulated activities under the law include mining, issuing crypto assets, and «activities of virtual asset service providers,» which require licenses for trading operators (crypto exchanges) and exchange operators (crypto exchangers). Detailed regulations for these activities and licensing rules were established later in September 2022 with the adoption of Government Decree No. 514 on the regulation of relations arising from the circulation of virtual assets.
According to Ekonomika sources, before adopting Decree No. 514, intense lobbying took place over licensing terms. The original draft resolution specified extremely high minimum authorized capital amounts for exchanges and crypto-exchangers, reflecting either the incompetence or greed of the drafters, or an intention to negotiate entry into the country with a single investor capable of making such investments while excluding everyone else.
Rumours circulated about negotiations with the world’s largest crypto exchange, Binance. (It’s worth noting that partnering with Binance has one issue: they «collect» licenses globally, and it’s unlikely that their next subsidiary will be more than a legalized gateway to their main exchange).
Regardless, the following rules were approved in September: the minimum capital for a crypto exchange is 40 million soms [$480,000], and for a crypto exchanger, 100 million soms [$1.17 million]. The significant authorized capital amount and the requirement to pay it in non-cash funds to a current account are counterbalanced by the absence of a rule on maintaining it.
This rule was removed from the original version of Decree No. 514. Unlike the requirements for assets of licensed professional participants in the stock market, crypto businesses are not burdened with any coefficients. In simpler terms, one can show the capital in the account and withdraw it the next day to use for other purposes.
The rest of the licensing requirements are as complex as they are challenging to enforce. After all, it is a virtual world
License Fever
The Gosfinnadzor website has not yet introduced the category “virtual asset service providers” in the “registries” section, so the number of licensees in this category has to be calculated manually. Judging by the reports in the Gosfinnadzor news, at least 13 licenses for these types of activities and at least two mining certificates have already been issued:
Crypto exchanges and crypto exchangers:
• LLC «Omega Capital» for the right to operate as a virtual asset exchange operator (series VA No. 0001, registration No. 01 dated November 2, 2022);
• ENVOICE VISION DIGITAL EXCHANGE JSC, virtual asset exchange operator (series VA No. 0002, registration No. 02 dated November 10, 2022);
• ENVOICE VISION DIGITAL EXCHANGE OJSC, virtual assets exchange trading operator (series VA No. 0003, registration No. 01 dated November 10, 2022);
• CJSC «Biatex» for the implementation of the activities of the operator of trading in virtual assets (crypto-exchange) (series VA No. 0006, registration No. 02 of December 09, 2022);
• CJSC «Standard Development» for the activities of the operator of the exchange of virtual assets (series VA No. 0009, reg. No. 06 of December 21, 2022);
• LLC «Bitok plus», for the implementation of the activities of the operator of the exchange of virtual assets (series VA 10, registration No. 07 of January 20, 2023);
• LLC «Royal Pure Gold» for the activities of the operator of the exchange of virtual assets (February 2023);
• LLC «E1» for the activities of the operator of the exchange of virtual assets (February 2023);
• LLC «Exchain» for the activities of the operator of the exchange of virtual assets (February 2023);
• LLC «Meta Capital» for the activities of the operator of the exchange of virtual assets (February 2023);
• LLC «AlfaBit Group» for the activities of the operator of the exchange of virtual assets (March 2023).
• T-Stor LLC for the right to operate as a virtual asset exchange operator (series VA No. 0020, registration No. 17 dated March 25, 2023);
• LLC Skynance for the right to operate as a virtual asset exchange operator (series VA No. 0019, registration No. 16 dated March 24, 2023);
• LLC «ElCrypto» — for the implementation of the activities of the operator of the exchange of virtual assets (March 13, 2023);
• LLC «BiCrypto» — for the implementation of the activities of the operator of the exchange of virtual assets (March 2023)
• ACC LLC — license to operate as a virtual asset exchange operator (April 2023)
• LLC «Akkula-UT» — license to operate as a virtual asset exchange operator (April 2023)
• LLC «MTN» — the issue of digital tokens was registered (April 2023)
Mining:
• certificate of LLC «ViNET» for the right to carry out mining activities (series VA No. 0002, registration No. 02 dated November 11, 2022);
• certificate of Spetsenergomontazh Karabalta LLC for mining activities (dated January 27, 2023).
• certificate of FengYuen Technological Company LLC for the right to carry out mining activities.
Why do I need a Kyrgyz license for a crypto business?
So far, we can only speculate about the specific businesses of the firms mentioned above and future crypto business licensees. According to our contacts in the crypto industry, a crypto license from a developing country may appeal to several groups of entrepreneurs.
First, crypto businesses already successfully operating online that need a license to legalize their activities. These can include exchanges, exchange offices, and related services. Among them are many reputable, long-standing projects.
Second, crypto startups that need proof of the legality of their activities to attract venture capital funding. Venture funds financing crypto projects have been increasingly concerned with regulatory risks due to the American SEC’s tough actions in the past year.
Third, financial operators that transfer large volumes of traditional money into crypto (primarily stablecoins) are businesses in our region primarily associated with Russian financial flows. The turnover of such operators can reach tens of millions of dollars per month. They need a license not for investors and clients (who often don’t care, as everything is based on personal trust), but to work with large licensed crypto asset providers. The ideal scenario involves a direct account with a liquid crypto exchange that accepts fiat or with a stablecoin issuer (like Tether or Circle). Opening such accounts is nearly impossible without a license.
Lastly, projects targeting mass retail investors that need a license to inspire customer confidence. They may offer «high-yield crypto asset investment programs,» «managed accounts,» «investment in robotic strategies,» and more. Unfortunately, the percentage of dishonest actors among this category is significantly high, but it is almost impossible to identify them at the licensing stage.
