Cryptography Regulations and the United States

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The regulatory framework around the crypto industry carries an underlying darkness in the US, while the community demands clarity. The regulatory outlook in the United States regarding digital assets is complex and constantly changing. Recent regulatory actions and previous cases like the FTX saga, called for a comprehensive regulatory framework for the digital asset industry.

U.S. Cryptocurrency Regulatory Landscape

After the FTX saga, regulatory actions against the digital asset industry by the SEC increased by 183%. The country’s financial watchdog, the Securities and Exchange Commission, is trying to rebrand crypto as securities, as recent regulatory moves show. Others plead for them to be treated as commodities.

The Commodity Futures Trading Commission (CFTC) claims that Bitcoin and Ethereum are commodities. This puts the largest cryptocurrencies with a combined market dominance of around 67.48% and the exchanges that operate them are under the jurisdiction of the CFTC. The agency has also released several guidance letters announcing digital asset regulatory intentions.

Another major player in policing 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 companies were made to put them on the securities shelf. This decision means that companies offering ICOs fall under their jurisdiction.

Once under the SEC, companies had to comply with anti-money laundering (AML) laws, after registration. The recent regulatory actions against the digital asset industry are believed to be an act to eventually bring them under the jurisdiction of the SEC. Now, only time will tell whether or not the agency might succeed with its plan.

The CFTC relies on the widely accepted classification of digital assets to place Bitcoin and Ethereum under their jurisdiction. While the SEC relies on the Howey test to classify digital assets as securities, the Howey test refers to the US Supreme Court case to determine 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 United States Court of Appeals, the exchange argued for regulatory clarity from the regulator. However, the agency had requested an additional four months to deliver.

Overall, the regulatory framework in the United States surrounding the digital asset industry is insufficient and ambiguous. The regulator prosecutes the companies but does not provide the rules on which to operate.

History of Cryptocurrency Regulation in the United States

The regulatory framework has evolved rapidly, but it is still far from becoming a complete set of clear and enforceable regulations. For now, the set of rules was derived from the existing set focused on consumer protection, fraud prevention, and ensuring compliance with AML laws and Know-Your-Customer (KYC) regulations.

In the past, the following agencies were responsible for regulating digital assets. The Financial Crimes Enforcement Network (FinCEN), a division of the US Treasury Department, has been monitoring repeated activity on digital assets. In 2013, FinCEN categorized cryptocurrency exchanges and administrators and placed them on the shelf as Money Services Businesses (MSBs). They have been mandated to register with FinCEN and comply with AML laws.

FinCEN has released some 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 may raise securities and subsequent enforcement action will be taken for violations of securities laws. The CFTC declared jurisdiction over commodities, designating Bitcoin as a commodity in 2015. The agency is responsible for regulating cryptocurrency derivatives.

The Internal Revenue Service (IRS) has 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 when trading cryptocurrencies.

With multiple agencies trying to regulate crypto from different angles, a sense of ambiguity and vagueness is created. To escape this scenario, the United States needs a comprehensive regulatory framework, with a single regulatory agency or body at its head.

Andrew is a blockchain developer who developed his interest in cryptocurrencies during his post-grad studies. He is a fine observer of details and shares his passion for writing while being a developer. His backend blockchain knowledge helps him bring a unique perspective to his writing

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