Hungary Cracks Down on Encryption Trading, Up to 8 Years in Prison

Hungary has recently implemented one of the strictest cryptocurrency regulations within the EU, classifying unauthorized crypto activities as criminal offenses. According to the newly amended law, engaging in cryptocurrency trading on unlicensed platforms could result in a maximum prison sentence of 8 years. This sudden policy shift has turned everyday crypto trading into a potential legal risk, forcing several fintech companies to suspend their services in Hungary, affecting millions of users.

The new regulations will take effect from July 1, causing a huge stir in the fintech industry. Industry experts warn that this could lead to a massive outflow of funds while putting investors in legal trouble.

New Hungarian Law Details: Unauthorized encryption transactions can be punished with up to 8 years in prison.

Hungary's latest revised Penal Code has added two new offenses: "encryption asset abuse" and "providing unauthorized encryption asset exchange services."

According to the new law, anyone engaging in encryption currency transactions on an unlicensed platform may face up to 2 years in prison. If the transaction amount exceeds approximately $140,000, the maximum sentence can be 3 years; if it exceeds approximately $1,400,000, the sentence can be 5 years.

For service providers operating without government approval, the penalties are more severe, with a maximum sentence of 8 years in prison. This comprehensive reform has caught businesses and investors off guard.

According to local media reports, approximately 500,000 Hungarians use legal income to invest in encryption assets. However, under the new regulatory framework, many users may face criminal charges due to past or ongoing encryption activities.

A source said: "Ordinary users may face the risk of lawsuits simply for managing their investments as usual. This law is being enforced without any compliance guidelines having been released, and no one knows how to comply."

It is worth noting that the Hungarian Financial Supervisory Authority has 60 days to develop enforcement and compliance mechanisms, but the current legal environment remains unclear.

The new law also requires that all encryption transactions—whether exchanging tokens for fiat currency or exchanging other tokens—must be reviewed by authorized "validators" and provide compliance proof. Transactions without this proof will be considered invalid, and participants may face criminal penalties.

Although the law mentions that transactions below certain thresholds may be exempt, clear exemption standards have not yet been published.

A certain bank suspends Hungarian encryption business, new decree makes compliance path unclear

The uncertainty of the law has led major market participants to withdraw from Hungary. On July 9, a new bank headquartered in London announced the suspension of all encryption services "until further notice." The bank has over 2 million users in Hungary.

Users can still transfer their existing encryption assets to external wallets, but the services for purchasing, depositing, and staking have been completely frozen. The bank stated that the suspension of operations is to ensure full compliance with Hungarian domestic laws as well as the newly introduced EU crypto regulatory framework MiCA.

The bank is currently applying for MiCA authorization through its EU entity, but the additional local licensing requirements from the Hungarian central bank have complicated the process. As of July 7, the bank has also completely frozen its encryption asset balances and even closed the token sale functionality.

The bank emphasized that this measure is temporary and added that "it is working to restore services as soon as possible after the regulatory path becomes clearer."

Hungary Deviates from the EU's Unified Encryption Regulatory Path

Hungary's timing for cracking down on encryption transactions is particularly special, as the EU's MiCA regulatory framework also comes into effect on July 1. MiCA aims to establish a unified legal framework for the encryption market across the EU, with several member states choosing to postpone implementation to ensure a smooth transition. However, Hungary is going against this coordinated path.

An analyst stated: "It is hard to understand why Hungary is implementing such strict regulations just as the EU has established unified standards. This will create huge legal uncertainty and hinder fintech innovation."

However, the crackdown on encryption trading seems to be just part of Hungary's broader policy trend. The government has also introduced regulations limiting foreign companies' shareholding and enacted laws that allocate some citizens' donated funds to the state.

Critics argue that these policies mainly affect urban voters with higher education levels, who typically do not support the ruling party.

Although enforcement actions against global trading platforms are believed to be unlikely, companies registered in Hungary and local users are now facing legal risks. This has led to a paradox—foreign platforms may continue to provide services to Hungarian clients with little to no consequences, while local companies may face lawsuits.

However, the Hungarian central bank announced on July 3 that it would exclude encryption currencies from official reserves, further intensifying the restrictive atmosphere, citing the high volatility of encryption assets and unclear regulation.

The central bank stated: "The stability and reliability of reserve assets must be prioritized." It also reiterated its preference for traditional assets such as gold and fiat currency.