Hungary's New Crypto Regulations Spark Prison Fears, Exodus Threat

Hungary has introduced stringent new regulations that pose significant risks to cryptocurrency traders, potentially leading to prison sentences and an exodus of crypto companies from the country. These regulations, which are more restrictive than the European Union's latest standards, have raised alarms among industry participants and analysts.

The updated Criminal Code in Hungary now includes two new criminal offenses: "abuse of crypto assets" and "providing unauthorized crypto asset exchange services." These amendments, effective from July 1, impose severe penalties on individuals and service providers involved in unauthorized crypto trading. Private individuals face up to two years in prison for smaller trades, while larger transactions exceeding 50 million Hungarian forints (over $145,000) can result in three-year sentences. For illegal trading of 500 million forints or more, the penalty can be up to five years in prison. Service providers operating without the required authorization face even harsher penalties, with sentences for large-scale operations potentially reaching eight years.

The lack of clear guidelines for implementing these new regulations has created a gray area, leaving the door open for the prosecution of previously legal activities. According to analysts, approximately 500,000 Hungarians have invested in cryptocurrencies using legitimate and taxed income. The ambiguous language of the new law and the absence of implementation guidelines have raised concerns about the potential for overreach and unfair prosecution.

The uncertainty surrounding these regulations threatens to trigger an exodus of companies in the fintech and crypto space. Industry members have warned that several Hungarian firms are considering transferring their operations to more crypto-friendly jurisdictions in Europe, such as the Baltic states. The startup ecosystem, which relies on foreign exits, could be devastated by these moves. The UK-based neobank Revolut has already announced that it will temporarily halt crypto services in Hungary "with immediate effect until further notice," affecting all new cryptocurrency purchases, staking, and deposits.

The new regulations are seen as part of a broader regulatory crackdown by the Hungarian government, which has also implemented restrictions on foreign corporate acquisitions and other business activities. Critics argue that these rules target voters who do not support Hungarian Prime Minister Viktor Orban and may lead to capital flight. The enforcement of Hungary’s stricter measures coincides with the implementation of the European Union’s Markets in Crypto Assets (MiCA) regulation, which aims to harmonize crypto rules across the bloc. However, Hungary’s approach diverges from Brussels’ goal, creating a more restrictive environment for local crypto firms.

While global platforms such as Binance and Coinbase continue to serve the Hungarian market, the new regulations create unfavorable conditions for local crypto firms, preventing them from operating legally. Similar concerns have been expressed in Poland, the largest crypto market in Central and Eastern Europe, where recent efforts to transpose MiCA into national law have sparked reactions from the country’s crypto industry. Members of the industry have blamed Polish politicians for proposals that go beyond what the EU requires, threatening the survival of domestic crypto businesses.