Bitcoin (BTC) and other cryptocurrencies are novel inventions that do not fit neatly within financial regulatory frameworks, given its short history and unprecedented structure.
Unfortunately, cryptocurrencies have also been used to conceal illicit activity. For example, the infamous Silk Road, a global online illegal drug bazaar, relied on Bitcoin as a medium of exchange for its buyers and sellers.
These factors have created headaches for regulators around the world. But as traditional financial institutions enter the crypto fray, and as digital assets gain traction with consumers, U.S. regulators are scrambling to keep up.
What are the current U.S. regulations that impact crypto?
In the last few years, U.S. federal regulatory agencies have issued a range of policies concerning their treatment of cryptocurrency transactions, investment gains, payment services, and activity other involving digital assets.
The U.S. Securities and Exchange Commission (SEC) has said it views cryptocurrencies as securities, and will apply existing securities laws to digital assts. This is important for retail investors, because it means they are obligated to report realized gains and losses from crypto investments on their annual tax forms. Failure to do so will invite the scrutiny of the Internal Revenue Service, which has vowed to crack down on crypto tax dodgers.
The Commodities Futures Trading Commission (CFTC), by contrast, has classified Bitcoin and Ethereum as commodities. Cryptocurrency derivatives – most commonly, Bitcoin futures -- are legally traded on public exchanges overseen by the CFTC. Institutional investment in cryptocurrency often takes the form of buying and selling futures contracts, including speculators and hedgers.
Cryptocurrency exchanges like Coinbase (COIN) are legal in the United States. They fall under the regulatory scope of the Bank Secrecy Act (BSA), a law overseeing the activity of financial institutions and payments transmitters. To stay compliant, crypto exchanges must implement Anti-Money Laundering and Know-Your-Customer programs. They need also report pertinent information to regulators and obtain licensing from The Financial Crimes Enforcement Network, as well as payment transmitter licenses from states they operate in.
What has the Biden administration said about cryptocurrency regulations?
The Biden administration is taking a firmer stance on regulating the cryptocurrency sector than Trump officials.
SEC Chairman Gary Gensler said that bad actors in crypto should be prepared for tougher enforcement under Biden; that his agency will aggressively pursue enforcement actions; and that Congress should consider a law to regulate crypto exchanges.
“There is no authority to register and write rules to protect the investing public,” said Gensler. “The investing public would benefit from more regulation.”
The Treasury Department has published a tax plan that includes a section on crypto. The paper warned that authorities are failing to detect cryptocurrencies that are used to pay for illicit goods. It also said exchanges must report all crypto transactions over $10,000 in fair market value.
Janet Yellen, the Treasury Department Secretary, has said on numerous occasions that cryptocurrency firms are inadequately regulated by U.S. authorities.
The new Acting Comptroller of the Currency Michael Hsu said his agency is reviewing guidance and directives issued by Brian Brooks, his predecessor. The crypto community appreciated Brooks, former General Counsel at Coinbase, for his crypto-friendly policies. These included authorizing banks to provide crypto custody services and granting banking charters to crypto startups.
The Federal Reserve does not oversee regulatory enforcement of the cryptocurrency industry. However, the Fed has been conducting research on launching a digital dollar: a blockchain-powered, online-only version of the standard U.S. dollar. Those plans remain years away, according to Federal Reserve Chair Jerome Powell.
This article is part of our Decoding Crypto series, where we explore the fundamentals of cryptocurrency and how investors can start interacting with the digital asset. Check out our other articles:
Decoding Crypto: What It Is, How It Works, and How to Get Started
Decoding Crypto: The 10 Most Popular Cryptocurrencies
Decoding Crypto: How to Buy, Sell and Track Cryptocurrencies
Decoding Crypto: What Was the First Cryptocurrency and Who Created It?
Decoding Crypto: Top 25 Crypto Terms You Need to Know
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
In This Story
BTCOther Topics
Bitcoin Central Banks Policy & Regulation Politics Smart Investing
John Hyatt
John Hyatt is a freelance journalist covering financial services, market structure, stocks and IPOs, and private equity. Prior to entering journalism, John worked in public relations for clients in financial services, investment management, fintech and cryptocurrency. John is currently receiving his M.A. in business and economic reporting from NYU as a Marjorie Deane fellow.
Read John's Bio