The Regulatory Appetite for Cryptocurrency in the United States
Countries around the world are being forced to decide what role, if any, cryptocurrencies and initial coin offerings (“ICOs”) will play in their financial markets. The United States is no exception, as investors and leaders in the crypto industry continue to push for as little regulation as possible. But given the long, slow nature of the regulation process, many of these investors and crypto leaders are anxious to see some form of clear and uniform cryptocurrency regulations (Adrian Zmudzinski, Cointelegraph). To make matters worse, the partial shutdown of the federal government further delayed the process, particularly as it relates to agencies such as the Securities and Exchange Commission (SEC) (John Nancarrow, Bloomberg Law).
Echoing the concerns of various leaders in the crypto industry, over a dozen congressmen are pressuring the SEC to provide additional clarity and guidance regarding its plans to regulate and classify cryptocurrencies (Kate Rooney, CNBC). Currently, the classification of any given cryptocurrency varies depending on the agency. For example, the Commodity Futures Trading Commission (CFTC) generally classifies cryptocurrencies as commodities; the SEC treats them as securities, with the exception of Bitcoin and Ether, both of which lack a central controlling party, making them decentralized enough not to fall into this category; the Financial Crimes Enforcement Network (FINCEN) views cryptocurrencies as money; and the Internal Revenue Service (IRS) taxes them as property (Adrian Zmudzinski, Cointelegraph). Several of these agencies, particularly the SEC and the IRS, are choosing to use enforcement and punishment as a way to clarify their murky positions and policies. This leads many to fear that innovation and development of Blockchain technology, including cryptocurrencies and ICOs, will head overseas to countries who have already established clear, crypto-friendly regulations (Kate Rooney, CNBC). The current lack of regulations also poses risks to investors who are forced to wonder which cryptocurrencies will remain viable after regulations are put into place (Ike Brannon, Forbes).
On the other hand, government regulators seeking to protect investors from fraudulent ICOs and minimize the use of illegal crypto transactions are struggling to develop regulations robust enough to accomplish these goals while also providing enough freedom to allow this decentralized technology to develop. In addition, the vast diversity between the thousands of different cryptoassets currently available makes it difficult to create regulations that are both specific enough to be effective and broad enough to apply across the board. Before any meaningful guidance and clarity can be provided, regulators must determine which agency ultimately has the authority to regulate this arena and, in turn, provide the level of clarity investors and crypto leaders are seeking. (Id.)
While several countries, such as China and South Korea, are taking steps to ban ICOs and cryptocurrency trading altogether, many other nations are interested in some type of global regulatory approach (Robert Allen, Elexica). Recently, Japan announced that it would permit the cryptocurrency industry to self-regulate. The United Kingdom also appears to be following Japan’s lead by slowly authorizing a degree of self-regulation (Brian Michael, King & Spalding). Only time will tell if the United States and other major nations adopt a similar approach.