The regulatory framework around the crypto industry carries underlying obscurity in the United States, while the community asks for clarity. The regulatory perspective in the U.S. regarding digital assets is complex and ever-changing. The recent regulatory actions and previous cases like the FTX-saga, called for a comprehensive regulatory framework for the digital asset industry.
Regulatory Landscape for Cryptocurrency in the U.S.
Post the FTX-saga, the regulatory actions against the digital asset industry by the SEC increased by a whopping 183%. The financial watchdog of the country, the Securities and Exchange Commission is trying to rebrand crypto as securities, as visible from recent regulatory actions. Others argue for them to be treated as commodities.
The Commodity Futures Trading Commission (CFTC) argues about Bitcoin and Ethereum are commodities. This puts the biggest cryptocurrencies with a combined market dominance of around 67.48% and the exchanges operating them to be under CFTC’s jurisdiction. The agency also issued multiple guidance letters foreshadowing intentions to regulate digital assets.
Another major player to police digital assets and their industry is the United States Securities and Exchange Commission (SEC). The agency argues that the Initial Coin Offering (ICO) tactics used by many firms were done to place them on the securities shelf. This ruling means that the companies offering ICOs fall under their jurisdiction.
Once under the SEC, the companies had to comply with anti-money laundering (AML) laws, post-registration. The recent regulatory actions against the digital asset industry are believed to be an act of eventually bringing them under the SEC’s jurisdiction. Now, only time will tell if the agency could succeed in its plan or not.
CFTC relies on the widely accepted classification of digital assets to bring Bitcoin and Ethereum under their jurisdiction. While the SEC depends on the Howey test to classify digital assets as securities, the Howey test refers to the United States Supreme Court case for determining the credibility of an investment contract, created in 1946.
Coinbase opted for legal options to force the financial watchdog to provide the industry with regulatory clarity. In the letter to the U.S. Court of Appeals, the exchange pleaded for regulatory clarity from the regulator. However, the agency had asked for four more months to deliver.
Overall, the regulatory framework in the United States surrounding the digital assets industry is insufficient and ambiguous. The regulatory body is suing the firms but fails to provide the rules to operate on.
History of Cryptocurrency Regulations in the U.S.
The regulatory framework has been evolving rapidly but it is still far from becoming a clear and implementable comprehensive set of regulations. For now, the set of rules was derived from the existing set pointed towards consumer protection, fraud prevention, and ensuring compliance with AML laws and Know-Your-Customer (KYC) regulations.
In the past, the following agencies were charged with regulating digital assets. The Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Department of Treasury, policed the activities repeated to digital assets. In 2013, FinCEN classified cryptocurrency exchanges and administrators and placed them on the shelf called money services businesses (MSBs). They were mandated to register under FinCEN and comply with AML laws.
FinCEN issued certain guidelines regarding cryptocurrency, providing additional information on how the agency wishes to regulate digital assets.
The SEC issued a report in 2017 arguing that ICO might fall under securities, and subsequent enforcement actions will be taken for violation of securities laws. CFTC declared its jurisdiction on commodities, designating Bitcoin as a commodity in 2015. The agency is tasked to regulate cryptocurrency derivatives.
Internal Revenue Service (IRS) issued guidelines for taxing cryptocurrency. In 2014, the IRS classified digital assets as property for tax purposes. This scenario required individuals to report capital gains and losses while trading cryptocurrencies.
With multiple agencies trying to regulate crypto from different perspectives, a sense of ambiguity and vagueness is created. To evade this scenario, the United States requires a comprehensive regulatory framework, with a single agency or a regulatory body at its helm.
Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing
