Now that the cryptocurrency industry has become as gigantic as it is, financial institutions and governments around the world are looking to put a leash on this market to make it easier to monitor and control. The case is no different within the US, with the Securities and Exchange Commission (SEC) and the US government making different plans to regulate cryptocurrency.
So, will the SEC and the US government regulate cryptocurrency, and if so, how?
The need for crypto regulation
Public doubts about governments and financial institutions are fueling the acceleration of the cryptocurrency market. Many dislike how centralized banks handle money and don’t feel like they can rely on keeping their money safe and providing the best options for financial growth.
But during the crypto boom of late 2020, crypto regulation was much discussed.
Whether cryptocurrency should be regulated is a major point of contention among traders and enthusiasts. While some believe crypto should be kept separate from traditional financial parameters, others think crypto regulation is the best way forward.
In reality, regulating cryptocurrency to some extent can help reduce crypto-related crimes and better protect investors. It could be a great way to protect the crypto market and reduce the chances of huge financial losses (as we have seen repeatedly with thousands of investors).
Existing crypto regulations
Currently, cryptocurrencies exist in the US under the Bank Secrecy Act (BSA). However, cryptocurrencies also fall under the jurisdiction of the SEC and exchanges must register with this financial body to trade certain assets. In addition, the Commodity Futures Trading Commission (CTFC) and the Internal Revenue Service (IRS) also play a role in dealing with crypto taxes and crimes.
It is clear that the SEC has a focus on regulating cryptocurrency. In May 2022, the agency changed the name of its Cyber Unit to the Crypto Assets and Cyber Unit, while also expanding the number of employees in this department. We’ve also seen the SEC’s name pop up time and again in various cryptocurrency-related legal proceedings.
Why does the SEC regulate cryptocurrencies?
One of the main drivers behind the SEC’s move to regulate cryptocurrencies is that most crypto exchanges are likely to trade securities. Securities are negotiable assets that represent some financial value. This sounds somewhat similar to certain cryptocurrencies, which is why the SEC is urging crypto exchanges to register as a securities exchange, but by registering as a security exchange you are subject to certain laws and parameters, which not everyone likes.
The SEC has apparently already identified several crypto assets as securities such as Amp, Rari Governance Token, XYO and Kromatika. In addition, in 2017, the agency stated that Decentralized Autonomous Organization (DAO) tokens should be considered investment securities. So there is a clear pressure to register and regulate cryptocurrencies as securities.
A series of crypto exchanges have also been scolded by the SEC in the past, fueling the agency’s bid for regulation. For example, in 2022, the SEC investigated the hugely popular exchange Coinbase amid suspicions of unregistered securities trading. Coinbase opposed this accusation and the SEC has not yet announced an official investigation. But such actions highlight that this agency is now focused on keeping crypto companies in check.
The SEC has also sued Ripple Labs for illegally selling XRP. When Ripple Labs started raising funds in 2013, it did so through the sale of XRP, the company’s crypto. But the SEC has argued that XRP is in fact a security and should have been registered as such before any sale took place. Since the company has not done this, SEC stated: that it had “violated the registration provisions of the federal securities laws.”
Ripple was also charged with illegally exchanging XRP for non-cash consideration. While many are speculating that the SEC will not win this lawsuit, it is again representative of the agency’s goal to get a better handle on crypto trading.
There has also been a lot of talk about the regulation of stablecoin. This was largely driven by Binance’s decision to convert some of its publicly traded stablecoins to its stablecoin, BUSD. The exchange announced in the fall of 2022 that it would automatically convert a range of stablecoins to Binance USD (BUSD), including USD Coin (USDC) and Pax Dollar (USDP). The move sparked discussions about whether more rules should be enforced on stablecoin cryptos.
Government Crypto Plans
The Biden administration has also been working on cryptocurrency regulation. In September 2022, a framework was released by the White House on how cryptocurrencies should be treated. The framework examined a range of elements and was largely focused on fighting crypto-related crimes and protecting investors. For example, laws against unlicensed trading, fraud and financial instability are all possible, although official financial authorities such as the SEC have yet to enforce such legislation.
President Biden has previously spoken about the dangers surrounding the crypto space, signing an order in March 2022 to examine the risks posed by the growing industry. The order was partly prompted by concerns that Russia was using cryptocurrency to avoid financial sanctions, although this has not been confirmed.
In addition, President Biden has also proposed a rule requiring crypto exchanges and other companies to report cryptocurrency transactions with a market value of $10,000 or more to the IRS. This has not yet been implemented, but could be done in the near future.
Will the SEC and the government further regulate cryptocurrencies?
At the moment no concrete legislation has been passed to regulate cryptocurrencies, but there is a good chance that this will change soon. In all likelihood, we will see more and more cryptocurrencies as securities, requiring exchanges to register with the SEC if they want to trade them. In addition, Crypto tax laws may also become stricter for investors.
The additional focus of the US government and SEC on reducing financial crimes, such as money laundering and tax evasion, also play a role in this upcoming wave of regulation. While there is no guarantee that these bodies will continue to regulate crypto, it certainly appears that they are eager to do so.
As the crypto industry grows, regulators get closer
It is no surprise that the crypto industry has to deal with stricter regulations by the US government and the SEC. As more individuals and companies invest in the crypto space, official agencies must work to fight crime, protect the public and mitigate financial losses. So we may see various regulations being imposed on the cryptocurrency industry in the near future.