On Bitcoin and crypto regulation in the USA in 2021
As the crypto market broke new records and the new U.S. administration took over, the cryptocurrency regulation in the USA became a poignant topic once again. With the new appointments in regulatory agencies, the general policy towards cryptocurrency will be shaped in a more defined manner.
In this article, we’d like to outline major peculiarities of the current regulating aspects in the United States.
Despite the low enthusiasm of the former U.S. president towards bitcoin, his administration acted in a generally friendly manner when it came to digital coins. However, there is no comprehensive legal framework regulating crypto space now.
How the U.S. regulatory entities define bitcoin and crypto?
According to the Commodities Futures Trading Commission (CFTC), bitcoin and Ethereum are commodity and cryptocurrency derivatives that can be traded publicly. The Internal Revenue Service (IRS) considers cryptocurrencies to be property.
Treasury Department’s Financial Crimes Enforcement Network (FinCEN) does not deem cryptocurrencies as legal tender.
The U.S. regulation in the crypto industry
Bitcoin and crypto legal status in the United States is regulated by a number of agencies. It is a common view that the U.S. rules for the industry are unfit to handle the current status of things. Much has to be done to advance the U.S. crypto regulation as some countries are moving ahead of the curve. For example, it has become common for German financial institutions to apply for a custody license from the Federal Financial Supervisory Authority. The Swiss parliament has adopted a set of measures for setting a crypto business enterprise in Switzerland, as well as updating the status of trading with digital securities. In contrast to Europe, there is no comprehensive crypto guide for banks in the USA.
The Securities and Exchange Commission (SEC) monitors crypto assets that meet the definition of security. When such an asset is sold or offered, it must comply with the federal legislation on securities. The Commodity Futures Trading Commission (CFTC) oversees commodities transactions.
Another regulating body, the Treasury Department’s Financial Crimes Enforcement Network, (FinCEN) is responsible for anti-money laundering. FinCEN is famous for associating cryptocurrencies with illegal activities as its new chief, Janet Yellen, often mentioned this connection.
CFTC and SEC published statements warning the public of risks associated with cryptocurrencies. One of such press releases is “Spotlight on Initial Coin Offerings (ICOs)” by the SEC. The ICO campaigns are required to be registered as IPOs by the SEC. Also, only accredited investors are eligible for taking part in ICOs.
The most crypto-welcoming states include Colorado, Ohio, Texas, California, and Wyoming. For example, Colorado exempts cryptocurrencies from state securities laws. New York requires companies to obtain “BitLicenses’ and has more restrictive legislation for virtual currencies.
The Internal Revenue Service (IRS) deems bitcoin taxable, as well as all virtual currencies. A digital coin has a status of an asset or property, rather than a currency’s status. It is expected that bitcoin owners would report profit and loss from their transactions. These transactions can be qualified as short-term gains (bitcoins are held for less than one year before the transaction) or long-term gains (bitcoins are held for more than one year before the transaction) and taxed accordingly. In other words, all crypto-related payments, including donations and airdrop credits shall be reported to the IRS. Otherwise, there is a high probability that the penalty would follow.
This provision means that each holder of virtual currency is supposed to track gain or losses on each transaction. Sellers must comply with provisions regardless of whether their asset is traded on a regulated exchange.
Expectations from new appointments
A negative view on stablecoins was softened when in January 2021 Office of the Comptroller of the Currency (further in the text referred to as OCC) allowed financial institutions to use stablecoins as payment. OCC works as part of the U.S. Treasury.
As per Joe Biden’s proposal, the U.S. Securities and Exchange Commission (SEC) was chaired by Gary Gensler. Gensler is a former CFTC Chair and the common expectation was that he would demonstrate a more friendly stance on crypto. He taught courses on blockchain at the Massachusetts Institute of Technology.
When Gensler was appointed, however, the events around the social media-fueled GameStop campaign evolved and came to the focus of public attention. This may lead to reviewing the accountability of companies for how their marketing addresses and endorses risky trading strategies. On the other hand, people like Mike Novogratz anticipate the development of a Bitcoin exchange-traded fund (ETF), under the rule of Mr. Gensler. (A bitcoin ETF allows to trade BTC on a stock exchange and come as a regulated financial product)
The way the SEC finally settles its famous suit against Ripple Labs will be an indicative moment for the crypto community. The S.E.C claims that Ripple was not registered as a security and created an information vacuum to raise tremendous amounts. The commission had also cracked down Telegram’s ICO before.
According to the Reuters report as of Feb 13, 20201, Hester Peirce, a Republican commissioner at the S.E.C. confirmed the need for clarity in the area of cryptocurrencies.
In October 2020, the Department of Justice published a crypto enforcement framework that is obviously purposed to hinder anonymous transactions. According to this document, using private coins is already suspicious and decentralized exchanges shall register with FinCEN.
How do crypto money businesses function in the USA?
According to provisions of law, crypto money businesses shall register with FinCEN and implement an anti-money laundering policy. These companies need to report suspicious activity to FinCEN. The agency had to extend a previously 15-day’ comment period for digital transactions to 60 days.
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