Unleash the impact of U.S. crypto regulations in the crypto market
Cryptocurrency regulation in the U.S. is a tangled web of laws and regulations, each of which shapes the digital asset governance landscape. As we explore the complexities of U.S. crypto regulations, it’s important to understand how these laws affect investors, businesses, and the overall market.
The Regulatory Players
While many federal agencies and policymakers recognize that digital currency technology will be an essential part of the future infrastructure of the U.S., they also face the conundrum of how to foster the growth of cryptocurrencies while controlling their illegal uses. The U.S. government’s regulatory approach to cryptocurrencies is focused primarily on regulating crypto platforms, rather than the cryptocurrencies themselves. Several agencies, including the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), and Financial Crimes Enforcement Network (FinCEN) are involved in the regulatory process.
Role Played by SEC in Crypto Regulation
According to U.S. Securities and Exchange Commission Chair, Gary Gensler, chairman of the Securities and Exchange Commission (SEC), the majority of cryptocurrencies meet the criteria for securities under the Howey Test. Howey Test comes from a 1946 Supreme Court ruling in the SEC v. W.J. Howey Co.
As per the Securities Act of 1933, SEC has authority over securities governed by Securities Exchange Act of 1934 and the Investment Company Act of 1940. It also has authority over any instrument that are virtual which can be sold as an investment.
The SEC has a critical role to play when it comes to regulating cryptocurrencies, especially when it comes to the classification of digital assets (including crypto assets) as securities. There has been a long-running discussion about whether cryptocurrencies should be considered securities, and the SEC has taken enforcement action against companies such as Ripple, Coinbase, Binance, and others. According to SEC Chairman Gary Gensler, crypto platforms and lenders should be regulated like stock exchanges. Only then will they be able to serve as qualified custodians for investment advisors. Gensler’s position emphasizes the importance of protecting investors and preserving the integrity of financial markets while acknowledging the need to adjust to the changing landscape of digital assets.
Involvement of CFTC in Cryptocurrencies
The U.S. Commodity Futures Trading Commission (CFTC) regulates and supervises derivative transactions involving cryptocurrencies, including swaps, futures and options. The CFTC has complete control over derivatives transactions, but it does not have full control over commodity cash markets, such as spot commodity markets for cryptocurrency.
The CFTC has published guidelines on virtual currency derivative issues, taken enforcement action against firms engaged in market manipulation, and proposed an anti-fraud and anti-manipulation rule for virtual currency derivative issues. This regulatory engagement showcases the commitment and dedication of the CFTC in maintaining the integrity of crypto markets and safeguarding investors from fraudulent and illicit activities.
The function of the Financial Industry Regulatory Authority (FINRA) is important in the U.S crypto regulations. FINRA specifically makes the existing regulations come into force and monitors the activities of investors and other professionals who are involved in the trading of cryptocurrency. FINRA keeps an eye on cryptocurrency trading rules and regulations, making sure professionals follow the rules and protect investors from potential pitfalls. FINRA regulates and supervises professionals involved in cryptocurrency trades which is a part of its efforts to safeguard investors in the crypto market. This regulatory enforcement serves as a reminder of the importance of keeping digital assets trading transparent and secure.
Anti-Money Laundering Concerns in the Crypto Industry
The U.S. government addresses concerns regarding money laundering through the Bank Secrecy Act (BSA), the Anti-Money Laundering Act of 2020, and the Digital Asset Basic Act in the sector of crypto.
The BSA mandates that virtual asset service providers involving Money Services Businesses (MSBs), also include virtual currency exchanges and administrators of centralized repositories of virtual currency. It conducts thorough risk assessments and performs anti-money laundering (AML) programs based on those assessments.
The AML Act of 2020 classifies digital currency transactions as a “value that substitutes for currency.” This classification requires Member State banks (MSBs) to register with the Financial Crimes Enforcement Network (FinCEN) and comply with specific anti-money laundering (AML) regulations, including the establishment of an anti-money laundering program, reporting of suspicious activity, and customer due diligence (CDI) measures. The purpose of these requirements is to reduce the risk of money laundering and other criminal activities in the domain of cryptocurrency.
Money Transmission Laws
Money transmission laws regulate the transfer of funds, including virtual currencies, from one person or organization to another. To comply with these laws, many virtual currency exchanges need to register as a money transmitter. Binance, Coinbase, and other exchanges have obtained licenses to be money transmitters in several states, such as Minnesota. This indicates that digital currency exchange is gaining acceptance by governing bodies.
A money transmitter, as defined by the FinCEN, is an administrator or an exchanger that accepts and transfers convertible virtual currency or purchases or sells it.
Reporting Requirements
Cryptocurrency transactions are subject to reporting requirements under the Financial Crimes Enforcement Network (FinCEN) and the report of foreign bank and financial accounts. Individuals or businesses that own cryptocurrencies must keep detailed records of their cryptocurrency purchases and sales. The records must include: the amount and type of the virtual currency sold, date of acquisition, date of sale of the virtual currency proceeds from the sale, profit or loss amount.
Impact of Cryptocurrency Regulations
Now that cryptocurrencies can be traded through regulated institutions and investment funds, these risks associated with it can be mitigated. As the crypto market continues to develop and mature, regulatory frameworks of U.S crypto regulations are likely to evolve to address new challenges and opportunities. Keeping up to date with these changes will be important for individuals and businesses involved in the crypto space.
Cryptocurrency regulations is a complex and ever-changing process as governments and U.S. regulatory agencies are constantly trying to balance innovation, consumer protection, and financial stability in the crypto market. As the crypto market continues to develop, staying up-to-date on regulatory updates and developments will be key to success in this fast-paced and exciting space.
