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Once a bulky niche currency, touted in the dark corners of the internet by techies and privacy advocates, Bitcoin has become an investment asset that you can buy and sell in seconds through popular money services like Venmo. , Robinhood and Cash App.
In the aftermath of the 2008 financial crisis and the bailout that followed, Bitcoin was envisioned as a digital alternative to fiat currency that allows users to bypass the authority of banks and governments. But as cryptocurrency continues to gain popularity – and becomes increasingly entangled in finance and commerce – it may no longer be able to escape the watchful eye of Uncle Sam. We break down below- below some of the basic dynamics.
Why do regulators want to regulate Bitcoin and other cryptocurrencies?
It is Bitcoin’s ability to transfer value – without verification by a bank or government – as well as the amount of money currently involved that has sparked the interest of lawmakers. Over time, and generally in the wake of economic disaster, the United States has codified a complex set of rules governing most types of financial transactions in order to protect the public, deter fraud, and isolate l economy of bubbles, unhealthy concentration of risks and other dangers. . But the speed at which crypto is absorbing interest and capital from U.S. investors brings the issue to the fore in parts of Washington.
In August, Congress passed an infrastructure spending program funding improvements to old bridges and roads, expanding high-speed internet access, and taking action to tackle clean water and climate change. But an earlier draft included important provisions regarding cryptocurrency legislation. It should be noted in particular a proposal this would have required so-called “crypto brokers” to report tax data to the IRS, as did brokers of other assets such as stocks, bonds, and commodities.
Ultimately, the cryptocurrency provision was removed from all spending due to disagreements over the definition of who could reasonably be classified as a crypto “broker”. Lawmakers were unable to reach consensus on whether or not to include crypto miners, transaction validators and software developers.
Which organizations and lawmakers are advocating for new crypto laws?
As a modest collection of existing laws, as well as current congressional proposals (including HR 1628 and HR 3723), continue to blend into an informal legal framework, crypto exchanges – primarily Coinbase – have become a focal point. of Washington’s interest.
SEC Chairman Gary Gensler has become one of the most vocal voices advocating government regulation of cryptocurrency. Before Biden gave Gensler his current role, Gensler was a professor at MIT, where he taught a class on cryptocurrency.
On September 7, Coinbase was due to launch Lend, its new crypto-lending platform. But the exchange quickly abandoned its plans as the SEC threatened to sue, saying it was trafficking unregulated securities.
The SEC’s announcement on the loan came a month after Gensler sent a letter to Senator Elizabeth Warren. In it, he clarified the SEC’s position on crypto legislation – that more resources are needed to help investors, transactions, products and platforms – and expressed the desire for legislation and additional authority.
“The world of crypto finance now has platforms where people can trade tokens and other places where people can lend tokens… I think these different platforms can not only involve laws on securities; some platforms may also involve commodity laws and banking laws This raises a number of issues related to investor and consumer protection, protection against illicit activity and ensuring financial stability, ”Gensler wrote.
What role will the SEC play in crypto laws?
On September 14, Gensler further addressed crypto issues during a congressional hearing in which Gensler outlined the SEC’s upcoming priorities, as well as the SEC’s oversight over crypto assets.
Gensler said he believed crypto could drive change, but without regulatory oversight he questioned its longevity. Its prepared remarks suggest that the SEC will continue to carefully review token selling, trading and lending platforms, stable value coins, crypto derivatives, custody of crypto assets and more.
“We work with our sister agency, the [US Commodity Futures Trading Commission]because our two agencies each have relevant and in some cases overlapping skills in the crypto markets, ”Gensler said in her remarks. “We are working not only with the CFTC, but also with the Federal Reserve, the Treasury Department, the Office of the Comptroller of the Currency, and other members of the President’s Financial Markets Task Force on these issues.”
Gensler also outlined his views on the SEC’s jurisdiction over securities – including cryptocurrency: “Make no mistake: as long as there are securities on these trading platforms, under our laws, they must register with the Commission unless they qualify. for an exemption, ”Gensler said in his remarks.
What is driving the federal interest in regulatory measures?
Earlier this week, a false advertisement in the press claiming to be from Walmart in partnership with Litecoin, one of the lesser-known cryptocurrencies, Litecoin’s value skyrocketed to over $ 200 before the media could confirm the news was fake. Litecoin eventually returned to its previous value, but it is possible that the scam earned the authors – who were able to buy low and sell high – a significant profit.
Pumping and dumping schemes are common in the cryptocurrency industry and give lawmakers plenty of ammunition for their arguments in favor of crypto regulation. In fact, the frequent use of cryptocurrency in large-scale ransomware on U.S. businesses large and small – as well as government entities – has raised the ire of lawmakers, as ransoms paid in cryptocurrency are typically much more difficult for the authorities to follow. and to recover the money paid.
Overall, Bitcoin remains largely unregulated as an asset in the United States. While new legislation may allay some investor and regulatory fears about the volatility of crypto and the potential for crime-related transactions, Bitcoin – for now – is mostly out of touch with governments and mainstream financial systems. Currently, most cryptocurrencies are decentralized and autonomous. If US lawmakers want crypto legislation with bite, it will likely require significant coordination between international authorities, which will be a significant challenge.
What laws currently govern cryptocurrency?
Despite the absence of a comprehensive federal or international regulatory framework, some cryptography laws are in place:
- The IRS staked out something like a space watch request in 2014, and now if you make a profit from investing in crypto, you have to pay capital gains taxes.
- The United States Commodity Futures Trading Commission has defined its own jurisdiction in the regulation of crypto assets. Commissioner Dawn Stump released a paper explaining her take on whether Bitcoin is a commodity or a security. The CFTC regulates derivatives, not commodities, and has so far ruled that it has limited power over crypto assets. In the view of the CFTC, it has the power to regulate derivatives whether or not the underlying assets are cryptocurrencies.
- New York State requires commercial and non-profit entities holding and / or trading crypto to have a BitLicense
- Louisiana passed the Virtual Currency Business Act, making it the second state to require crypto operators to apply for a license
- Wyoming, a state that has aggressively embraced cryptocurrency, has passed and implemented more than 20 cryptocurrency laws, including Law HB584 of 2019, which exempts crypto assets from most laws. local securities – a legal standpoint that may potentially conflict with more sweeping federal laws, should they be passed.
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