Cryptocurrency regulation

State Of Cryptocurrency Regulation in the USA

Written by: Qadir AK

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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Mar 30, 2022

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Bitcoin & other cryptocurrencies are not new to the market. Their decentralized nature has attracted wrongdoers over their period of existence. As a result, many countries are strengthening their laws regarding cryptocurrency. Let us check how Cryptocurrency Regulation in the USA has been incorporated into their judicial system.

Current Regulations for Digital Tokens in the USA 

Initially, in the USA cryptocurrency was not a legal trade. People were still in denial that cryptocurrency might replace Fiat in the future. However, now there are few exceptions in the country. As the regulations vary by state, there is no consistent legal approach for cryptocurrency in the USA. Depending on the federal and state regulations, the laws vary in the USA. Let us go through the current Cryptocurrency Regulation in the USA

In the USA, there is a mixed type of treatment for cryptocurrency by state and federal governments. While the promises and benefits of this technology are still cynical, a number of policymakers have acknowledged the regulation risk of the currency. Also, others have passed legislation to increase investment in technology. 

So, what’s happening in the US cryptocurrency regulations? Below is the timeline of a series of events and announcements taken towards the crypto industry. Let us find out more!!

The US Crypto Regulation 2022

09-03-2022: President Biden issued his highly expected Executive order for assure responsible development on responsible development of Digital Assets. Executive order identifies the enormous growth of cryptocurrencies and the opportunities they present.

For more details click here

02-03-2022: Several U.S departments sent a letter to the Treasury Department expressing concern about OFAC’s current crypto enforcement procedures from using the cryptocurrency -tools to evade sanctions.

For more details click here.

01-03-2022: Treasury department published a report in which it notes that cryptocurrency exchanges must follow the same Bank Secrecy Act rules as banks, which includes registering with Financial Crimes Enforcement Network (FinCEN) and having a chief compliance officer.

For more details click here.

Crypto views are divided among the states

Other than these agencies, the US states have their own legal and regulatory regimes which are also considered. There have been two different approaches to regulations among the states. Some of the states have a friendly jurisdiction for cryptocurrencies.

Wyoming state has exempted cryptos from the property tax whereas Colorado promotes the use of blockchain for government records. States like Georgia and Arizona have pledged to accept Bitcoin as a payment option for taxes. But the state of Ohio has become the first state to adopt it.

On the other hand authorities in 10 states including California and New Mexico, issued warnings about investing in cryptocurrencies. New York has passed very rigid laws which resulted in the exit of the companies in the market.

FinCEN Regulations

FinCEN is known as the Financial Crimes Enforcement Network is a bureau of the US Treasury Department that collects and analyses the financial transactions in order to track any illegal activities. In 2015, FinCEN released a document stating that virtual currencies exchanges are subjected to regulations under the BANK SECRECY ACT(BSA) and must be registered as a Money Service Business(MSB). However, it does not consider virtual currencies as ‘legal tenders’. 

Regulation on Sales

The sales of the cryptocurrency are regulated only if the sale is carried out under the state or federal laws and when the sale is done with the money involved in it is subjected to the state laws and FinCEN regulations. The sale of the cryptos is also regulated by the CFTC under the Commodity Exchange Act.

Impact on Monetary Policy

The federal reserve’s ability to conduct monetary policy is dependent on the size of the virtual market. But still, the reserve does not have the authority to regulate the virtual currencies. The Secretary of Treasury has the authority to mint and issue coins but it’s unclear whether it covers government-backed virtual coins. 

The director of Research of Federal Reserve Bank of St.Louis said  “The most important aspect of this technology revolution is, in my view, the threat of entry into the money and payment system and what I think it will do is to force traditional institutions, including central banks, to either adapt or die”

Laws under Money transmission and Anti Money Laundering

The Money Service Banks(MSB) is regulated by FinCEN under BSA. On 18 March 2013, FinCEN issued guidance about the two key points it would consider to be recognized as MSB. One is, it should be a virtual currency exchange, and the other it constitutes an administrator of a centralized repository of virtual currency having authority to both issues and redeem the virtual currency.

The guidance also states that an exchanger who transmits and accepts a convertible virtual currency or buys/sells convertible virtual currency for any reason is a money transmitter under FinCEN’s regulations.

Under FinCEN regulations, the MSBs are required to develop, implement and maintain a written program to prevent money laundering and the financing of terrorist activities. The anonymity of the virtual currencies makes the government a tough job to track money laundering.

Taxation and Mining

Taxation

In the United States, the Internal Revenue System(IRS) looks after the enforcement of tax laws and collects taxes. The IRS treats cryptocurrencies as an asset or an intangible property but not a currency. The IRS has made it mandatory for all the US taxpayers to declare all transactions done with cryptocurrencies, no matter how small the amount is.

Cryptocurrencies, when used for simple transactions like buying domestic goods, will be subjected to Capital Gains Tax. Apart from this, the other transactions with cryptos subjected to tax are,

  • Selling of cryptos which are incurred by mining personally. 
  • Selling of cryptos bought from someone else.
  • Using cryptos mined by self to buy goods or services.
  • Using cryptos bought from elsewhere to buy goods and services.

Mining

In the case of Crypto Mining, IRS considers mined cryptocurrencies as taxable income which has to be included in the gross income. Also, the taxes vary if you mine cryptocurrencies as a hobby or carry out business. In such a case, hobbyists mining will be subjected to tax mentioned above. And if you own a crypto mining business, then the income will be subjected to self-employment tax. 

After having a brief discussion about the cryptocurrencies in the US, now let’s see what all events happened in the past.

Historic Events and Price 

21-09-2021: The U.S. The Treasury Department’s Office of Foreign Assets Control(OFAC) issued an updated advisory for sanction risks of facilitating ransomware payments using cryptocurrencies.

For more details click here.

01-09-2021: The SEC sends an Wells notice to Coinbase, stating that if a company proceeded to launch its lend product SEC would further sue on coinbase. Which further allows consumers to earn interest on cryptocurrency.

For more details click here.

10-08-2021: BitMEX, A cryptocurrency Exchange and derivatives trading platform owned and operated by Seychelles-based HDR Global Trading LImited made a global settlement with the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) commision(CFTC).

For more details click here.

09-08-2021: SEC settled charges with Poloniex, the web based platform operator that facilitated the buying and selling of digital assets of unregistered securities.

For more details click here.

06-08-2021: SEC settled charges against Blockchain Credit Partners and its two founders who sold unregistered tokens worth $30 million and misleading the investors about the operations and profitability of the company.

For more details click here.

14-07-2021: SEC Chairman Gary Gensler spoke about cryptocurrency at Aspen Security Forum about the unregistered tokens of the crypto market and their security. This asset class is rife with fraud, scams and abuse in certain applications, he stated.

For more details click here.

21-04-2021: Wyoming Gov. Mark Gordon signed Bill 38, which allows states to legally recognise decentralized autonomous organizations (DAOs) as limited liability companies. DAOs make governance decisions and certain actions on use of blockchain-based smart contracts.

For more details click here.

06-01-2021: The final rule on prohibition of sale of Crypto-Derivatives to UK retail, subject to U.K financial promotion regime. 

For more details click here.

2020

21-10-2020: The CFTC Division of Swap Dealer and Intermediatery Oversight(DSIO) published an advisory for FCMs concerned about the segregation of virtual currency in customer accounts. 

For more details click here.

19-10-2020: FinCEN claims $60 million Civil Monetory Penalty on Larry Dean Harmon, the founder and operator of two convertible virtual currency exchangers. For willful violation of the BSA and FinCEN’s implementing regulations.

For more details click here.

08-10-2020: The crypto Enforcement Framework issued by the Department of Justice (DOJ). Considered the very first comprehensive public statement of the DOJ’s approach to investigate and prosecute cryptocurrency related crimes.

For more details click here.

01-10-2020: The CFTC and the DOJ brought actions against BitMEX, a cryptocurrency exchange and derivatives trading platform owned and operated by Seychelles-based HDR global Trading Limited.

For more details click here.

30-09-2020: The Judge Alvin Hellerstein of the U.S District court for the Southern District judgment of New York grants the judgment in favor of the SEC in enforcement action SEC v.Kik, 19-cv-5244(AKH)(S.D.N.Y).

For more details click here.

24-09-2020: New US Digital Asset Legislation Introduced. Rep. Tom Emmer, R-Minn, introduces a securities clarity Act bill aimed to clarify the legal and regulatory landscape around digital assets . and the operations of selling and operating the digital assets.

For more details click here.

21-09-2020: OCC continues to support the crypto industry by publishing a letter clarifying that national banks and federal savings associations(FSA) have the authority to hold reserves as service bank customers. 

For more details click here. 

10-03-2020:- A US Congressman from Arizona, Paul Gosar announced Cryptocurrency Act 2020. The aim of the bill was to give a clear picture of which federal agencies will regulate digital currencies. According to the Bill, the Commodity Future Trading Commission(CFTC) would be the primary regulator. The Financial Crime Enforcement Network (FinCEN), the Comptroller of the currency would also be regulating cryptocurrencies. And the Security and Exchange Commission (SEC) would regulate crypto securities and synthetic stablecoins.

While presenting the bill the lawmaker said

“By providing much-needed regulatory clarity about cryptocurrency, we will make it easier for businesses, institutions, and everyday Americans to participate in this growing industry. No more murkiness, uncertainty, or confusion.” 

19-02-2020:- The IRS invites cryptocurrency companies to discuss the issues with cryptocurrency exchanges, tax return preparation, regulatory guidance and compliance. 

2019

18-12-2019:- Manhattan Attorney General indicated that a 19-yr old boy was caught stealing Bitcoins from wallets. The accused stole from more than 75 people across 20 states. He stole more than $1 million by accessing the victims Gmail, Dropbox and Yahoo accounts. 

15-09-2019:- The Chinese crypto exchange giant Binance, launched itself in the United States.

26-07-2019:- IRS issues notice to thousands of suspected cryptocurrency holders alerting them of the hefty penalties if failed to pay the taxes within the stipulated time.

12-07-2019:-President Trump tweeted about his views on cryptocurrency. According to him cryptos are not money and unregulated cryptos could result in illegal activities.

29-04-2019:- The US Security and Exchange Commission(SEC) suspended the trading and mining activities of the Bitcoin Generation(BTGN).

07-03-2019:- Denver becomes the second U.S jurisdiction after West Virginia to adopt a blockchain-based voting system mobile app for its overseas voters.

14-02-2019:- J.P.Morgan introduced its own digital token/coin for real-world use. The coin is based on blockchain technology which enables the transfer of payments between institutions.

2018

16-07-2018:- CFTC issues customers advisory about virtual currencies, urging customers to use caution and perform research before purchasing digital coins or tokens. 

02-04-2018:- The SEC charged founders of Centra Tech, Inc with fraudulent unregistered ICO that raised more than $32 Million from thousands of investors.

2017

17-04-2017:- Washington State legislators prepare a bill to regulate virtual currencies. The Senate bill had proposed by Senators Jan Angel and Mark Mullet in Jan 2017. Both the chambers had approved the bill and it was further directed to the Governor for approval.

10-02-2017:- A bill was introduced in Arizona seeking legal recognition of smart contracts, digital signatures and other blockchain records.

2016

14-11-2016:- The SEC hosted first-ever Fintech Forum. Panellist from different fintech companies addressed the forum elaborating the possible merge in the coming future.

16-06-2016:- South carolina legislature proposed a bill to include virtual currencies into the Anti-Money Laundering Act.

Concluding Point

The US is one of the superpowers in the world, and is also nearly active regarding the cryptocurrency markets. No doubt they do not consider Cryptos as legal tender, but they have not banned nor subjected to any harsh laws either. The formal taxation and money laundering laws are applicable which is quite justified. On the whole, The United States of America views the crypto market with a positive attitude when subjected to proper regulations

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Qadir AK

Qadir Ak is the founder of Coinpedia. He has over a decade of experience writing about technology and has been covering the blockchain and cryptocurrency space since 2010. He has also interviewed a few prominent experts within the cryptocurrency space.

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