Regulation
Everything You Need to Know About Cryptocurrency Regulation Right Now
Nowadays, cryptocurrencies occupy a prominent place in global economies due to unique attractions such as borderless financial connectivity, low fees, and extremely fast transactions.
These compelling offerings are fueling widespread adoption, forcing governments to rethink the rules around assets, money, and related financial concepts. However, many countries are struggling to place blockchain’s nascent use case in their broader financial framework or effectively regulate it.
In the United States, the regulatory framework is unclear due to the lack of cryptocurrency-focused regulatory tools to guide the industry.
As a result, government agencies struggle to compete with one another to control key areas of the evolving market, while states take different policy directions. The United States is not alone in this dilemma: other countries, such as China and the European Union, suffer the same fate.
The pressing need for targeted regulation cannot be overstated in light of unique crypto use cases. Examples include DeFi lending, which allows users to lend money as they would on traditional financial platforms.
Another common use for cryptocurrencies is online gambling, as players can access their favorite games, including live dealer options and jackpot slots, without sharing too much personal information.
When you enjoy a Live Casino with Litecoin payment options, players can enjoy the convenience and speed of Litecoin. The cryptocurrency market is also growing in popularity, where goods and services can be exchanged using only cryptocurrencies.
Having rules helps prevent chaos, manipulation, and widespread unfair practices.
Regulatory Agencies’ Efforts on Cryptocurrencies
Regulatory agencies such as the SEC, CFTC, and FinCEN have taken a central role in regulating cryptocurrencies in the United States, with conflicting activity due to the lack of statutory guidance on who should regulate which aspects of the industry. Here is an overview of these bodies’ policy directions in the cryptocurrency space.
Securities and Exchange Commission (SEC)
In the United States, the SEC has the strongest say in cryptocurrency matters, as it has the power to issue rules governing the fair and orderly practices of securities market participants, including the enforcement of court judgments.
The SEC has left cryptocurrency regulation open-ended, without specific policies tailored to it. Instead, it applies existing rules to the cryptocurrency market to ensure that chaos, fraud, or manipulation does not occur.
One of the most heated debates is whether cryptocurrencies can be considered securities, commodities, or currencies.
The SEC insists that they are securities, except for Bitcoin, Ethereum and a handful of others, and requires registration. However, this decision is rejected because it removes The Allure of Decentralized Cryptocurrencywhich favors its large-scale adoption.
Commodity Futures Trading Commission (CFTC)
Since there is no single authority that regulates cryptocurrencies, the CFTC clashes with the SEC in regulating the market, which leaves supporters of the project having to clarify which agency to turn to.
In general, the CFTC has the power to regulate derivatives and futures trading on specialized tokens like Bitcoin and Ethereum.
However, given the ongoing debate over whether cryptocurrencies are commodities, currencies, or securities (a debate that the securities side is winning), the CFTC currently has little to do with regulating the industry.
Financial Crimes Enforcement Network (FinCEN)
Under U.S. law, FinCEN is required to protect the financial system by overseeing companies and individuals involved in serious financial crimes, such as terrorist financing and money laundering.
In the cryptocurrency market, it regulates cryptocurrency activities to prevent terrorist financing by ensuring compliance with Anti-Money Laundering RegulationsThis is essential due to the anonymous/pseudonymous nature of cryptocurrencies and the substantial losses suffered by enthusiasts over the years.
In 2023 alone, losses due to cryptocurrency investment scams in the United States reached $3.94 billion, demonstrating the call for pro-regulation commentators to proactively regulate cryptocurrencies.
Similar to the SEC, this agency also applies existing AML policy mandates to crypto projects, such as risk assessment, Know-Your-Customer rules, suspicious activity reporting, and more, as a form of regulation of cryptocurrency industry activities.
Failed Attempts at Federal Cryptocurrency Legislation
Over the years, US politicians have made feeble attempts to regulate aspects of cryptocurrency. Due to lack of interest at the time of introduction, these bills fail to pass the legislative hurdle.
In 2022, the Responsible Financial Innovation Act (“RFIA”) was introduced to clarify the oversight roles of federal agencies in integrating digital assets and stablecoins into existing banking frameworks. Similarly, the Toomey Stablecoin Bill sought to regulate stablecoin payment and issuance in the United States.
In mid-2022, the Digital Commodities Consumer Protection Act (the “DCCPA”) was introduced to give the CFTC exclusive authority to regulate digital commodities platforms and trading.
In July 2023, an updated version of the Digital Trading Clarity Act was proposed to redefine securities and establish consumer protections in light of the widespread failures of blockchain companies.
That same month, the Financial Innovation and Technology for the 21st Century Act (the “McHenry-Thompson Bill”) was introduced to address gaps in the regulation of digital assets and derivatives.
States’ Approach to Cryptocurrency Regulation
The failure of the U.S. federal government to create coherent cryptocurrency laws has forced many of the 50 states to go it alone, passing laws to sanitize the activities of cryptocurrency and blockchain stakeholders as they see fit.
At this level of the federal structure, two approaches are common. For example, states like Wyoming pass crypto-friendly laws that exempt crypto projects from strict state securities laws and money transmission statutes, hoping to attract more investment and stimulate their local economies.
Wyoming was the first to Recognize Decentralized Autonomous Organizations (DAO) as an incorporated company. It also issued the first government-backed stablecoin, backed by U.S. dollar reserves. Nearby Utah was also the first to allow government agencies to be paid via digital assets.
At the other end of the spectrum are states like Florida, the District of Columbia, California, and New York, which are making it harder for blockchain companies to operate within their borders by requiring state-issued licenses for some operators.
Larger states with booming economies appear to be cracking down on blockchain companies, while smaller states are positioning themselves as havens for crypto projects.
Overall, the uncoordinated regulatory approach favors cryptocurrency use cases such as sports betting, NFT trading, and offshore casinos, as project backers can experiment with little to no restrictions. At the same time, users choose what catches their fancy.