A Careful Look at Crypto Regulations in The United States

Globally, government officials and financial regulators have become increasingly interested in cryptocurrencies and blockchain technology. A significant factor driving this interest is the widespread adoption and usage of numerous cryptocurrencies-related services.

The United States is the largest digital market in the world hosting such giants of the crypto industry like Coinbase. No wonder the number of people who are interested in cryptocurrency is constantly growing there, whether just having it or using it for their business activity.

Due to the sensitive nature of the crypto space, governments and financial regulators of the US are gradually enacting new laws to regulate platforms and services related to cryptocurrencies.

US Cryptocurrency Laws & Regulations

Although not classified as legal tender, Bitcoin and many other cryptocurrencies are considered money in the US. Despite being viewed as legal currencies, digital assets are also classified as commodities, properties, and securities. 

Different financial regulators assign these classifications to cryptocurrencies in the US. Additionally, all of these classifications are done to ensure cryptocurrencies fit into existing financial regulations in the US.

Due to the unique nature of cryptocurrencies, these classifications gave birth to many new regulations, which are sometimes at odds with each other. However, there may be a unified view of cryptocurrencies in the future with the recent executive order on cryptocurrency signed by incumbent US President Joe Biden.

Current Crypto Regulators In The United States

Numerous financial regulators in the US provide guidelines for using crypto-related products and services. These regulators also play a crucial role in ensuring crypto platforms operating in the US comply with current financial laws. Let us briefly consider some of the most prominent crypto regulators in the United States.

The Internal Revenue Service (IRS)

The Internal Revenue Service (IRS) considers cryptocurrencies to be property. This classification empowers the IRS to treat cryptocurrencies as taxable property under the Federal Income Tax law.

Cryptocurrency transactions for individuals and businesses are governed by IRB 2014-16, IRS Notice 2014-21. Due to these guidelines, individuals and businesses resident in the US must report their crypto transactions for tax purposes.

The Securities and Exchange Commission (SEC)

The SEC classifies digital assets as securities. Although the SEC has not enacted new laws, this regulator expects all crypto platforms operating within the US to conform to existing securities laws.

The SEC has directed enforcement actions against several centralized and decentralized crypto platforms based on the existing securities laws. For example, in a recent settlement with the SEC, BlockFi Lending LLC paid $100 million for failing to register its Interest Account as a security in 32 states in the US.

A settlement with DeFi Protocol Money Market over the sale of digital assets that are not classified as securities was also reached in August 2021 by the SEC. At the time, the project’s founders were required to pay back $12.8 million from the token sale to platform users. Additionally, the founders each paid a $125,000 fine to the SEC.

Financial Crimes Enforcement Network (FinCEN)

FinCEN is another prominent authority in the US that plays the most essential role when it comes to cryptocurrency regulation. As an agency of the US Treasury Department, FinCEN is responsible for preventing and punishing money laundering and other financial crimes.

Through its guidance issued on March 18, 2013, FinCEN now utilizes the Banking Secrecy Act (BSA) to regulate the activities of crypto platforms. The guidance specifies that virtual money regulators can be classified as money transmitters.

Thus, such platforms fall under the purview of FinCEN. Currently, crypto exchanges operating in the United States are registered and regulated by FinCEN.

Apart from the three bodies listed above, several other financial regulators play a vital role in regulating cryptocurrencies in the US. These include agencies like the Commodities Futures Trading Commission (CFTC) and the Office of the Comptroller of Currency (OCC).

However, despite their best efforts, there are still numerous regulation gaps in the US crypto space. For example, the crypto gambling industry currently lacks a solid legislative framework. Though there are fifteen states in the US where online gambling is legal, so many crypto casinos provide local players with all the benefits cryptocurrency offers over conventional online payment systems.

These casinos take advantage of the decentralized nature of cryptocurrencies that provides a higher level of privacy in terms of financial transactions. However, with a deeper understanding of the crypto space and the enactment of unified laws for digital assets, it is just a matter of time before all activities that involve cryptocurrency will be regulated.