Denmark Considers Regulating Self-Custodial Bitcoin Wallets, Sparking Industry Concerns

Reacting to recent DeFi guidance by the Danish FSA (Financial Supervisory Authority), Mikko Ohtamaa of Trading Protocol noted,

Denmark’s financial regulator may extend regulation to self-custodial wallets like Bitcoin [BTC] wallets. The move was sparked by recent DeFi guidance from the Danish FSA (Financial Supervisory Authority).

Mikko Ohtamaa of Trading Protocol highlighted the issue, stating:

“In the latest DeFi guidance of Danish FSA, the regulator goes overboard. The guidance tries to capture everything in crypto regulation, including your Bitcoin wallet, using the ‘interface’ argument.”

According to Ohtamaa, the interface thesis could impact a wide range of entities, including Bitcoin wallet service providers.

“You do not need to think about it too hard to realise that everything is an interface: your computer, your web browser, your Bitcoin wallet, Uniswap website, and so on.”

DFSA’s move is driven by a perceived gap in the EU’s MiCA (Markets in Crypto Assets) regulation, which is set to become effective on 30th December, 2024. The MiCA regulations notably exclude decentralized finance.

If adopted, the proposal could make offering BTC wallets in Denmark challenging, as highlighted by Ohtamaa.

“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.”

While Estonia reportedly took a similar approach on self-custodial wallets, the US recently rejected a related move.

In March, claims against Coinbase Wallet were dropped in the SEC vs. Coinbase lawsuit, marking a win for self-custody wallets in the US.

“Significant setback for SEC w/ Judge Failla granting Coinbase’s motion to dismiss SEC’s claim that Coinbase acted as a broker by offering non-custodial digital wallet software.

SEC aimed to discourage builders from developing peer-to-peer software. Didn’t work.”

Moreover, the recently passed US crypto infrastructure bill, FIT21 Act, opted to study DeFi, like MiCA, rather than regulating it.

DFSA is currently seeking feedback from private actors on the proposals, which could be revised before adoption.

Adopting the DFSA proposal, as it is, could negatively impact those offering self-custody Bitcoin wallet services in Denmark, whether through apps or web browsers.