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Once a cumbersome and cumbersome currency promoted in the dark corners of the Internet by techophiles and privacy advocates, Bitcoin has become an investment asset that you can buy and sell in seconds through popular monetary services with Venmo, Robinhood and Cash App.
After the 2008 financial crisis and subsequent bailout, Bitcoin was envisioned as a digital alternative to fiat currency that allows users to evade the authority of banks and governments. But as the cryptocurrency continues to grow in popularity and become increasingly entangled in finance and commerce, it may no longer be able to escape Uncle Sam’s watchful eye. Below we break down some of the basic dynamics.
Why do regulators want to regulate Bitcoin and other cryptocurrencies?
It is Bitcoin’s ability to transfer value (without verification from a bank or government), along with the large amount of money that has now aroused the interest of lawmakers. Over time, and usually in the wake of an economic disaster, the United States has codified a complex rulebook that regulates most types of financial transactions to protect the public, deter fraud, and isolate the economy from bubbles. , of any concentration of unhealthy risk and other hazards. . But the speed with which cryptography is absorbing the interest and capital of American investors is pushing the issue to the forefront in some corners of Washington.
In August, Congress approved an infrastructure spending package that funded the improvement of old roads and bridges, expanding high-speed Internet access and taking steps to address clean drinking water and change. climate. But an earlier draft included some significant provisions on cryptocurrency legislation. It should be noted a proposal this would have required so-called “cryptographic brokers” to report tax data to the IRS, as would brokers of other assets such as stocks, bonds, and commodities.
Ultimately, the provision of cryptocurrencies was reduced from the spending package due to disagreements over the definition of who could reasonably be classified as a “broker” of cryptography. Lawmakers could not reach a consensus on whether or not to include cryptographic miners, transaction validators, and software developers.
Which agencies and legislators advocate new cryptographic laws?
As a modest collection of existing laws, as well as current proposals in Congress (including HR 1628 and HR 3723), continue to merge into an informal legal framework, cryptographic exchanges (most notably Coinbase) have emerged as a focal point. of The Washington Interest.
SEC President Gary Gensler has become one of the clearest voices advocating government regulation of cryptocurrency. Before Biden took advantage of Gensler for his current role, Gensler was a professor at MIT, where he taught a course on cryptocurrency.
On September 7, Coinbase was due to launch Lend, its new cryptocurrency lending platform. But the stock market quickly dismissed its plans, as the SEC threatened to sue, alleging it was trading in unregulated securities.
The SEC’s announcement about Lend came a month after Gensler sent a letter to Senator Elizabeth Warren. In it, he clarified the SEC’s position on cryptographic legislation (that more resources are needed to help investors, transactions, products and platforms) and expressed his desire to have additional legislation and authority.
“The world of cryptocurrencies now has platforms where people can exchange tokens and other places where people can lend tokens … I think these various platforms can not only involve securities laws; some platforms can also involve product laws. basic banking and banking laws. This raises a number of issues related to investor and consumer protection, protection from illicit activities and ensuring financial stability, ”Gensler wrote.
What role will the SEC play in cryptographic laws?
On Sept. 14, Gensler further addressed concerns about cryptography in a hearing in Congress where Gensler outlined the SEC’s upcoming priorities, as well as the SEC’s oversight of cryptographic assets.
Gensler said he believes cryptography can foster change, but without regulatory oversight, he questioned its longevity. His prepared comments suggest that the SEC will continue to examine the sale of tokens, trading and lending platforms, stable value currencies, cryptocurrencies, custody of cryptocurrencies and more.
“We are working with our sister agency, the [US Commodity Futures Trading Commission], as our two agencies have relevant jurisdiction and, in some cases, overlap in the crypto markets, “Gensler said in his statements.” We are working not only with the CFTC, but also with the Federal Reserve, Department of the Treasury, Currency Controller’s Office and other members of the President’s Working Group on Financial Markets on these issues. “
Gensler also noted his perspective on the SEC’s competition in terms of securities, including cryptocurrency: “Don’t get me wrong: to the extent that there are securities on these trading platforms, under our laws, they should register with the Commission unless they meet the requirements for an exemption, ”Gensler said in his comments.
What is driving federal interest in regulatory action?
Earlier this week, a fake press release pretending to be from Walmart in collaborating with Litecoin, one of the lesser known cryptocurrencies, caused the value of Litecoin to skyrocket to more than $ 200 before the media was able to confirm that the news was fake. Litecoin eventually returned to its previous value, but the scam may have made a significant profit for the authors (who were in a position to buy and sell high).
Pumping and unloading systems are common in the cryptocurrency industry and offer ammunition to the legislator to defend their arguments for the regulation of cryptography. In fact, the frequent use of cryptocurrency in high-profile ransomware in American companies, both large and small, and also in government entities, has raised the inconvenience of lawmakers, as bailouts paid in cryptocurrency are often much more difficult to track down by the authorities. and recover the money paid.
In general, Bitcoin remains largely unregulated as an asset in the US. While additional legislation may alleviate some investor and regulatory fears about the volatility and potential of cryptocurrencies for crime-related transactions, Bitcoin – for now – is primarily disconnected from governments and conventional financial systems. Currently, most cryptocurrencies are decentralized and autonomous. If U.S. lawmakers want cryptographic legislation with teeth, there is likely to be significant coordination between international authorities, which will pose a major challenge.
What laws now govern cryptocurrency?
Despite the lack of a general federal or international regulatory framework, there are some cryptographic laws in place:
- The IRS opted for something like a claim to oversee the space in 2014, and now if you make a profit by investing in cryptography, you’ll have to pay capital gains taxes.
- The U.S. Commodity Futures Trading Commission has found out its own competence in regulating cryptographic assets. Commissioner Dawn Stump released a paper explaining her perspective on whether Bitcoin is a commodity or a security. The CFTC regulates derivatives and not commodities and has so far decided that it has limited jurisdiction over cryptographic assets. In the opinion of the CFTC, it has the authority to regulate derivatives, regardless of whether the underlying assets are cryptocurrencies or not.
- New York State requires that commercial and nonprofit entities that own and / or trade cryptocurrencies have a BitLicense
- Louisiana has passed the Virtual Currency Business Act, making it the second state to require cryptocurrency operators to apply for a license.
- Wyoming, a state that aggressively adopts cryptocurrencies, has passed and implemented more than 20 cryptocurrency laws, including the 2019 HB584, which exempts cryptocurrency assets from most local securities laws, a legal view that may eventually enter into conflict with more extensive federal laws. will be approved.