Cryptocurrencies have gained immense popularity and widespread adoption in recent years, leading to a surge in demand and value. However, with the rise in popularity comes the need for regulatory oversight to protect investors and consumers. In the United States, there is a complex regulatory landscape for cryptocurrencies that varies from state to state and from agency to agency. This blog post provides an overview of the cryptocurrency regulations in the USA.
The Securities and Exchange Commission (SEC)
The Securities and Exchange Commission (SEC) is responsible for regulating securities, including digital assets that are classified as securities. The SEC has issued guidance and taken enforcement actions against companies that have violated securities laws, including those related to initial coin offerings (ICOs). The SEC has also designated some cryptocurrencies as securities, such as Bitcoin and Ethereum.
Additionally, the SEC has been scrutinizing cryptocurrency trading platforms that operate as exchanges, such as Coinbase and Binance US. The SEC has suggested that these platforms may need to register as securities exchanges and comply with federal securities laws. In September 2021, Coinbase was served with a Wells Notice from the SEC, indicating that the agency may pursue legal action against the company for an unregistered securities offering related to its Lend program. The outcome of this case could have significant implications for the regulation of cryptocurrency exchanges in the USA.
The Commodity Futures Trading Commission (CFTC)
The Commodity Futures Trading Commission (CFTC) is responsible for regulating commodities and futures trading, including certain cryptocurrencies. The CFTC has designated Bitcoin and other cryptocurrencies as commodities, subjecting them to regulation under the Commodity Exchange Act. The CFTC has also taken enforcement actions against companies that have violated commodities laws, including fraudulent schemes involving cryptocurrencies.
The Financial Crimes Enforcement Network (FinCEN)
The Financial Crimes Enforcement Network (FinCEN) is responsible for enforcing anti-money laundering (AML) and counter-terrorism financing (CFT) regulations. FinCEN requires that cryptocurrency exchanges and other money service businesses (MSBs) register with the agency and comply with AML and CFT regulations. FinCEN has also issued guidance on the application of these regulations to virtual currencies.
In May 2021, FinCEN issued a proposed rule that would require cryptocurrency exchanges and other MSBs to collect more information on customers who make large transactions, including information about the beneficial owners of accounts. The proposed rule has faced criticism from some cryptocurrency advocates who argue that it would create onerous compliance burdens and undermine the privacy and security of cryptocurrency users.
The Internal Revenue Service (IRS)
The Internal Revenue Service (IRS) is responsible for enforcing tax regulations, including those related to cryptocurrencies. The IRS has issued guidance on the taxation of cryptocurrencies, treating them as property for tax purposes. This means that capital gains taxes apply to cryptocurrency transactions and that cryptocurrency must be reported on tax returns.
In addition to federal regulations, individual states have their own regulations regarding cryptocurrencies. New York, for example, has a licensing regime for cryptocurrency businesses known as the BitLicense. Other states, such as Wyoming, have enacted laws to create a welcoming regulatory environment for cryptocurrency businesses.