As the use of cryptocurrency continues to grow in popularity and mainstream acceptance, the need for clear and effective financial regulation becomes increasingly important. In the United States, the regulatory landscape for cryptocurrency is complex and constantly evolving, with various federal and state agencies working to address the unique challenges posed by digital assets.
In this article, we will provide a comprehensive overview of the current state of financial regulation of cryptocurrency in the United States in 2022. We will examine the role of key regulatory bodies, including the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), as well as the various legislative and regulatory initiatives underway at the federal and state level.
The Role of the Securities and Exchange Commission (SEC)
The SEC is the primary federal agency responsible for regulating the securities industry, including the issuance and trading of securities such as stocks, bonds, and other financial instruments. In the context of cryptocurrency, the SEC has taken the position that many digital assets, particularly those that are marketed and sold to the public, are considered securities and are therefore subject to the same regulatory requirements as traditional securities.
The SEC has brought a number of enforcement actions against companies and individuals involved in the issuance and sale of unregistered securities in the form of initial coin offerings (ICOs). The SEC has also issued a number of investor alerts and other guidance related to cryptocurrency, including warnings about the risks associated with investing in ICOs and other digital assets.
The Role of the Commodity Futures Trading Commission (CFTC)
The CFTC is the federal agency responsible for regulating the commodity futures and options markets, including the trading of futures contracts on commodities such as oil, gold, and agricultural products. In the context of cryptocurrency, the CFTC has taken the position that certain digital assets, including bitcoin, are considered commodities and are therefore subject to CFTC jurisdiction.
The CFTC has brought a number of enforcement actions against companies and individuals involved in the trading of cryptocurrency derivatives, such as futures contracts and options, that were not properly registered with the agency. The CFTC has also issued a number of advisories and other guidance related to cryptocurrency, including warnings about the risks associated with trading digital asset derivatives.
Federal Legislative and Regulatory Initiatives
In addition to the regulatory actions taken by the SEC and CFTC, a number of federal legislative and regulatory initiatives related to cryptocurrency are currently underway in the United States.
One notable example is the Cryptocurrency Act of 2020, a proposed bill that aims to clarify the regulatory framework for cryptocurrency and digital assets. The bill, which was introduced in the Senate in June 2020, would establish three separate categories of digital assets: currency, securities, and commodities. Each category would be regulated by the appropriate federal agency, with the SEC regulating securities, the CFTC regulating commodities, and a yet-to-be-created Digital Asset Regulatory Agency (DARA) regulating currency.
Another important initiative is the Office of the Comptroller of the Currency’s (OCC) decision to allow national banks and federal savings associations to provide custody services for cryptocurrency. The OCC, which is a branch of the U.S. Department of the Treasury, issued a letter in July 2020 stating that national banks and federal savings associations are authorized to provide custody services for cryptocurrency, subject to certain conditions and requirements.
The Role of the Internal Revenue Service (IRS)
The IRS is the federal agency responsible for administering the U.S. tax code and collecting taxes. In 2014, the IRS issued guidance stating that virtual currency, including cryptocurrency, is treated as property for tax purposes. This means that any gains or losses from the sale or exchange of cryptocurrency are subject to capital gains tax, just like gains or losses from the sale of stocks or other property.
The IRS has also taken steps to ensure that taxpayers properly report their cryptocurrency transactions. In 2019, the IRS sent letters to over 10,000 taxpayers reminding them to report their cryptocurrency transactions on their tax returns and warning of potential penalties for failure to do so. In 2021, the IRS announced that it was launching a new task force focused on cryptocurrency tax evasion and other non-compliance issues.
The Role of the Financial Crimes Enforcement Network (FinCEN)
FinCEN is a bureau of the U.S. Department of the Treasury that is responsible for implementing and enforcing the Bank Secrecy Act (BSA) and other anti-money laundering (AML) and counter-terrorist financing (CTF) laws. In the context of cryptocurrency, FinCEN has issued guidance stating that virtual currency exchangers and administrators, including cryptocurrency exchanges, are considered money transmitters under the BSA and are therefore subject to AML and CTF requirements.
FinCEN has also taken enforcement action against companies and individuals that have failed to comply with these requirements, including the imposition of substantial fines. In 2021, FinCEN announced that it was strengthening its efforts to combat illicit activity involving cryptocurrency, including the creation of a new task force focused on cryptocurrency-related money laundering and other financial crimes.
The Role of the Consumer Financial Protection Bureau (CFPB)
The CFPB is a federal agency created by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The CFPB is responsible for protecting consumers from unfair, deceptive, or abusive practices in the financial marketplace. In the context of cryptocurrency, the CFPB has issued guidance stating that virtual currency companies, including cryptocurrency exchanges and wallet providers, are subject to CFPB supervision and enforcement authority.
The CFPB has also taken enforcement action against companies and individuals involved in cryptocurrency-related misconduct, including the imposition of substantial fines. In 2021, the CFPB announced that it was launching a new initiative focused on cryptocurrency-related consumer protection issues, including the handling of consumer complaints and the dissemination of information to consumers about the risks and benefits of using cryptocurrency.
The financial regulation of cryptocurrency in the United States in 2022 is a complex and rapidly evolving landscape. While key regulatory bodies such as the SEC and CFTC have taken steps to address the unique challenges posed by digital assets, a number of legislative and regulatory initiatives are also underway at the federal and state level. As the use of cryptocurrency continues to grow and evolve, it is important for regulators, industry participants, and consumers to stay informed about the latest developments in this area.