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The concept of cryptocurrency is highly technical. Very few people understand how it works at an expert level—even most computer programmers don’t know how cryptocurrencies work! However, there are many resources on the internet where beginners can learn about how different types of cryptocurrencies work before deciding whether they want to invest in them or not.
Cryptocurrency regulation is especially confusing for most, so this article will give you a quick walkthrough of the things you need to know about crypto regulation.
- Regulators Are Trying To Catch Up
Regulators are struggling to agree on how to deal with cryptocurrency. In the US, for example, there are the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission which regulate securities trading, Internal Revenue Service (IRS) which oversees taxes, FinCEN (the Financial Crimes Enforcement Network), FBI/ICE for criminal investigations, and many others. The result is that no one agency has overall jurisdiction over crypto; each agency is free to pursue its own agenda.
This lack of coordination means that regulators can’t act quickly enough to keep up with innovation in this field—and they’re under pressure from both industry leaders and lawmakers who want them to move faster or take more aggressive action against fraudsters or scammers who are making money off cryptocurrencies such as BTC or ETH while exploiting gaps in regulation designed for traditional financial markets like stocks and bonds rather than new technologies like blockchains.
- The IRS Says Cryptocurrency Is Property, Not Currency
The IRS is treating cryptocurrency as property for federal taxation purposes, according to the agency’s website. “For federal tax purposes, it’ll be treated like any other asset or investment.”
In other words, cryptocurrency isn’t money, nor should it be treated as such. Instead of buying your coffee with Bitcoin and paying your friends back with Litecoin tips (don’t do that), you can go ahead and net out all your crypto purchases on your taxes (and deduct any losses) in order to determine how much capital gains you owe Uncle Sam.
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- SEC Says Cryptocurrencies Are Mostly Securities
The SEC has a very narrow definition of what is and isn’t a security, which means it considers most cryptocurrencies to be securities. However, the SEC doesn’t consider Bitcoin to be a security because Bitcoin wasn’t created with the expectation that others would buy it or sell it based on the efforts of others. The SEC has also stated that some cryptocurrency exchanges are security exchanges, but none have been approved for listing exchange-traded products (ETPs).
- New York State Has Its Own Regulations For Cryptocurrency Exchanges
The New York State Department of Financial Services (DFS) is the body that regulates cryptocurrency exchanges in New York. To this end, they’ve proposed a framework called BitLicense. This license applied to virtual currency businesses operating in New York and was first proposed in 2014.
It’s important to note, however, that even though the state requires all companies operating as cryptocurrency exchanges to have a BitLicense from DFS, there’s no federal law requiring this licensure for all other states across America yet.
- The CFTC Says Bitcoin And Other Cryptocurrencies Are Commodities And Can Be Regulated As Such
If you’ve been following the news about Bitcoin, you may have heard that the US Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) are both regulating cryptocurrencies. The SEC oversees securities sales while the CFTC regulates futures contracts and other derivatives trading.
You might think that this division of duties would lead to clashing jurisdictions, but it doesn’t. The CFTC has more authority over crypto than the SEC does because commodities like Bitcoin aren’t legal tender, which means they’re not considered currency in most cases. As such, they’re regulated by the CFTC as if they’re physical commodities like corn or wheat—and Bitcoin is no exception.
- FinCEN Says Cryptocurrency Exchanges Must Comply With The Bank Secrecy Act’s Anti-Money Laundering Provisions
The Bank Secrecy Act (BSA) is a federal law that requires financial institutions to comply with anti-money laundering (AML) regulations. The Financial Crimes Enforcement Network (FinCEN), which is part of the US Treasury Department, is responsible for enforcing the BSA and its implementing regulations.
The BSA prohibits financial institutions from engaging in any transaction that they know involves proceeds from illegal activity or has a reasonable suspicion that it could involve such proceeds. These provisions apply equally to cryptocurrency exchanges as they do to banks and other traditional financial institutions. Cryptocurrency exchanges must also ensure their customers’ transactions follow these rules if they wish to stay out of trouble with FinCEN regulators.
Cryptocurrency exchanges are required by FinCEN to have an AML program in place if they want their business operations to continue uninterrupted by regulatory authorities; failing this requirement could lead not only to fines but also potentially being shut down completely.
Conclusion
Cryptocurrency complicates the rules governing currency, so if you’re working with it, know the latest regulations.
While cryptocurrency is certainly not a new concept and has been around for years, it’s only recently that it has become more widely used. As a result of this increased popularity, governments and financial institutions have begun to examine how they can regulate cryptocurrency and what steps they might take to protect consumers who are using them. In some cases, this regulation is being put into place preemptively to prevent fraud; in others, it’s part of an effort to protect investors or keep up with technological advances.