Prison sentences and industry exodus fears: Hungary’s new rules threatens crypto traders

New regulations, tougher than the EU’s latest, are putting cryptocurrency traders in Hungary at risk of prison time while threatening to trigger an exodus of crypto companies from the country.

Budapest’s highly restrictive rules come as Brussels is trying to implement unified regulatory standards across the bloc, something that other member states view as an opportunity to attract crypto business.

Hungary to punish unauthorized crypto trading with prison

Hungary’s updated Criminal Code threatens half a million Hungarians invested in cryptocurrencies with strong penalties, including prison sentences, global and local media noted, sounding the alarm about what’s taking place in the Central European nation.

The amendments, which went into force earlier this month, introduce two new criminal offenses, namely “abuse of crypto assets” and “providing unauthorized crypto asset exchange services,” Forbes pointed out in an article published Monday.

Under the legislation, private individuals using such services face up to two years in prison for smaller trades while “particularly high value” transactions, those exceeding 50 million Hungarian forints (over $145,000), can result in three-year sentences. Illegal trading of 500 million forints or more may be punished with up to five years behind bars.

At the same time, service providers working without the required authorization will be subject to even harsher penalties, with sentences for large-scale operations potentially reaching eight years, the report detailed.

According to analysts quoted by the Hungarian news outlet Telex, some 500,000 Hungarians have bought crypto assets using legitimate and taxed income. However, the new law’s language, which allows for broad interpretation, as well as the lack of guidelines for its implementation, leave the door open for prosecution of previously legal activities.

Commenting on the gray area created by the recent changes in the Hungarian Criminal Code, an industry source, who chose to remain anonymous, summarized:

“The problem is that this is legislation where nobody can comply when it takes effect.”

The new provisions took effect on July 1. Hungary’s Financial Supervisory Authority, which has 60 days to develop a compliance framework, is yet to produce the guidelines for their implementation.

Hungarian crackdown expected to spark exodus as Revolut suspends services

The current uncertainty threatens to trigger the departure of companies in the fintech and crypto space, with members of the industry already warning that several Hungarian firms are considering transferring their operations to friendlier jurisdictions in Europe, such as the Baltic states.

A source elaborated:

“The startup ecosystem depends on foreign exits being readily available. These moves amount to a startup exodus that could devastate the sector.”

Meanwhile, the UK-based neobank Revolut, quite popular among Europeans, announced before the weekend that it will temporarily halt crypto services in Hungary “with immediate effect until further notice.” The suspension affects all new cryptocurrency purchases, staking and deposits.

“The legislation appears to be part of a broader regulatory crackdown by the Hungarian government, which has also implemented restrictions on foreign corporate acquisitions and other business activities,” Forbes commented, highlighting criticism that the rules target voters who do not support Hungarian Prime Minister Viktor Orban and may lead to capital flight.

The magazine also noted that the enforcement of Hungary’s stricter measures coincides with that of the European Union’s Markets in Crypto Assets (MiCA) regulation. It remarked that Budapest’s approach diverges from Brussels’ goal to harmonize crypto rules in the EU.

Another industry analyst told the publication:

“It’s incomprehensible why Hungary would implement such restrictive rules just as the EU is establishing unified standards.”

While Hungary’s stringent regulations are unlikely to affect the operations of global platforms such as Binance or Coinbase, who continue to serve the Hungarian market, they are creating unfavorable conditions for local crypto firms, preventing them from working legally.

Similar concerns have been repeatedly expressed in Poland, arguably the largest crypto market in Central and Eastern Europe. Recently renewed efforts to transpose MiCA into national law sparked reactions from members of the country’s crypto industry who blamed Polish politicians for proposals that go beyond what the EU requires, threatening the survival of domestic crypto businesses.

KEY Difference Wire: the secret tool crypto projects use to get guaranteed media coverage