Is Government Regulation Coming for the Cryptocurrency Market?

1 Jun 2022 by Michael Kriech

Cryptocurrency has experienced phenomenal growth over the last decade, outperforming all asset categories in the market today. The constantly evolving cryptocurrency was founded on the principles of decentralization and non-regulation. However, over the last few years, cryptocurrency has been the focus of much attention by both Federal and state governments. The Federal governments have been mainly focusing on the administrative and agency aspect. The Federal level agencies involved include the Securities and Exchange Commission, the Commodity Futures Trading Commission, the Office of the Controller of the Currency, and the Financial Crimes Enforcement Network.

Legal Tender

The United States does not consider cryptocurrency a legal tender, and regulation varies by state. Presently, it is not easy to find a consistent legal approach at the state level. That is, the Financial Crimes Enforcement Network (FinCEN) does not consider cryptocurrencies to be legal tender. However, FinCEN does consider crypto exchanges to be money transmitters, arguing that they transfer tokens that possess other values that can be considered a substitute for currency. Similarly, the Internal Revenue Service (IRS) defines crypto as a digital representation of value, even though it’s still not a legal tender.

Regulations on Crypto Exchanges 

The current regulations on cryptocurrency is mainly on cryptocurrency exchanges, which fall under the regulatory scope of the Bank Secrecy Act (BSA). It means crypto exchanges are required by law to register with FinCEN, implement an AML/CFT program, maintain appropriate records, and submit reports to the authorized institutions for verification and approval.

The United States Securities and Exchange Commission (SEC), on the other hand, treats cryptocurrencies as securities and hence applies securities laws in monitoring crypto exchanges and wallets. This is in contrast to the Commodities Futures Trading Commission (CFTC), which considers cryptocurrency a commodity whose derivatives can be traded publicly.

FinCEN has made it clear that cryptocurrency exchanges must comply with the “Travel Rule”, which requires the latter to gather and share information about the senders and receivers of crypto transactions. This has squarely placed crypto exchanges in the same category, regulation-wise, as traditional money transfer providers. FinCEN released a Notice of Proposed Rulemaking (NPRM) in October 2020, which effectively adjusted the Travel Rule to make it more specific to exchanges.

Potential Future Regulations

The U.S. financial regulatory authorities continue to work on specific regulatory parameters for cryptocurrencies. The treasury emphasizes the urgent need to regulate cryptocurrency to combat criminal activities across the globe. FinCEN had a proposal, which is being debated upon, to introduce regulation that would impose data collection requirements on crypto exchanges and wallets. The proposal includes the requirement for crypto exchanges and wallets to submit any suspicious activity reports (SAR) for transactions exceeding $10,000. It will also require wallet owners to identify themselves whenever they send digital assets worth more than $3,000 in a single transaction. The implementation of the rule is expected to kick off in Fall 2022, according to FinCEN.

Future cryptocurrency regulations continue to be debated and coordinated across the regulatory authorities and involve the Justice Department coordinating with the SEC and CFTC. The goal is to effectively protect consumers and streamline the regulatory oversight devoid of legal contradictions. For example, the Biden administration has raised concerns about the rise of stablecoins, with the President’s Working Group on Financial Markets releasing a series of recommendations to make new regulations.

Considering the ongoing debate, specifically in Congress, new rules are likely to emerge to continue regulating cryptocurrency exchanges, including the need to treat them as brokers. This will push them to comply with the relevant AML/CFT reporting and the obligations to keep records based on the established legal framework.

Speak with a Crypto expert today 

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Author

Michael Kriech

Michael brings twenty-three plus years of IT and telecommunications experience to Datacenters.com. With a wide range of expertise, Michael assists his clients in determining the best solutions needed for their technology roadmap. As information technology infrastructure evolves, Michael continues to suggest and present comprehensive, stable, and scalable solutions. This helps clients take advantage of the best and latest technologies that support company objectives while freeing up time to concentrate on core competencies. With a passion for helping organizations meet their goals, Michael is willing to go the extra mile to support his clients. A Navy Veteran and proud husband and father, Michael and his wife (Jessica) spend their spare time raising puppies as a volunteer for Canine Companion for Independence (CCI).

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