Is Crypto Day Trading Legal in 2023?

Is crypto day trading legal?

This article will deal with the question whether or not day trading cryptocurrencies is legal. Day trading cryptocurrencies gets more and more attention worldwide. Trading is not something new, but trading the crypto markets is something many people want to do nowadays, as you can earn good money off of it. The question remains: Is it even legal?

What is day trading?

First of all, the word „trading“ refers to the activity of buying and selling assets or commodities in the financial markets. A trader is a speculator, that means that he or she has a short time horizon when buying and selling. The complete opposite is an investor: These people buy into assets for the long term, let’s say five or more years. They are betting on a price increase over the next few years/decades. A day trader is someone who opens and closes positions in under 24 hours. Not every trader has to be a day trader, there are so-called „position traders“ for example, who steadily buy into assets when prices are down and looking to sell their positions in six months. Another type of traders are the so-called „swing traders“, who open up a position and close it in three days or two weeks for example. These people are no day traders, as their time horizon is longer than 24 hours. But they are also no investors, because they are still speculating on the price of an asset for a short period of time.

What is crypto day trading and where is the difference?

Crypto (day) traders are people who focus on trading the crypto markets. If a trader is saying that he/she is a crypto day trader, that usually means that they only trade the cryptocurrency assets, no stocks, commodities, Forex or other markets. If a trader decides to day trade crypto, he or she is opening and closing positions on the same day. A big difference here is that the crypto markets are open 24/7, this is not the case for the stock markets for example. Also, the crypto markets are more volatile, meaning that they are a bit harder to trade. The risk is a bit bigger, but also the opportunity to make more money. Traders make their living from volatility in the markets, they do not need a price increase like investors.

Is trading the cryptocurrency markets legal?

For most parts of the world, day trading cryptocurrencies is legal, yes. However, cryptocurrencies in general are banned in some countries. But it is important to differentiate between the implicit and absolute ban. If the ban is implicit, certain use cases involved with cryptocurrencies are still legal, like trading. Examples of this can be found in Zimbabwe, Libya, Bahrain or Cameroon. However, if the ban is absolute, even trading is forbidden then. Examples for countries with full bans are Iraq, Egypt, China, Morocco, Nepal and Qatar. To sum this question up: Some countries completely allow cryptocurrencies and their many use cases, others still declare them as legal but regulate them, a few countries have a implicit ban on them (where trading could also be banned) and only a few completely banned them (therefore also trading is not allowed/possible). You might have heard that cryptocurrencies are completely decentralized and safe from any laws of government. This leaves the question if cryptocurrencies can even be 100% banned.

Can cryptocurrencies (and day trading) even be completely banned at all?

Cryptocurrencies will never be 100% banned. This is because of the the largest communication medium of our time: the Internet. If cryptocurrencies are really going to 100% disappear, all governments would have to shut down the internet. Would that make sense? No, absolutely not. In terms of the economy alone, virtually nothing would work anymore. From time to time the government tries to turn off the Internet for some people/groups. That makes perfect sense, since they aren’t up to anything useful. This is called censorship, not an absolute ban. What happens in such a case? The Internet is now between individuals: a so-called peer-to-peer network (P2P). In this, information is no longer exchanged via a server, but only between the individual participants. So, even censorship is theoretically possible, but in practice those affected switch to other alternatives. The states that are seriously trying to do this have far more important problems and are only losing the financial race to other states that are approaching the situation more intelligently. Do you know what the real problem is here? The redistribution of wealth that our age now offers to the masses. The government has to think about how best to regulate this and, above all, how to make the most profit. This has been the case with gold in the past.

Also, there is the factor of decentralization. The main reason here is that most cryptocurrencies are open source, anyone can publicly view and participate in the blockchain. Nobody owns the whole thing and could pull the emergency plug. All associated processes, such as mining, are also decentralized. Exchanges are also becoming increasingly decentralized, and these cannot be taken offline either. A centralized exchange can be shut down at any time by the authorities, this can not happen to decentralized ones.

So, as long as the internet is running, crypto currencies can not be stopped. Even if the internet falls out, keep in mind that there are also a lot of satellites in space providing the earth with internet for such a scenario.

Ban/Regulations on futures products could be a thing in your country

Chances are that the buying and selling of cryptocurrencies is legal in your country, but futures products could be illegal. Futures products are derivatives: Instead of trading the spot markets (the crypto asset itself), you are trading the derivative products of those with leverage. Leverage trading is extremely risky, many retail traders lose their money with it. Therefore some governments declare them illegal in their country, or at least heavily regulate them. Also a missing financial permission to operate these trading services can make them illegal. This happened to Binance in September of 2021, as they had to shut down their futures services for many European countries like Germany or Italy. 

Crypto day trading is probably legal in your country, but always very risky.

Apart from the legal/illegal aspect, day trading cryptocurrencies is extremely risky, especially on leverage. Even when you are living in a country where the trading of cryptocurrencies is legal, you should really consider if you want to do it full time. Also, you should only risk what you are willing to lose, especially in the beginning!