Since its inception, cryptocurrency has attracted the attention of investors, businesses, and governments worldwide. However, in the United States, the regulation of cryptocurrency is a complex issue that involves several agencies. Most people think that the Securities Exchange Commission (SEC) is the big chief in the house. While the SEC has been making the most waves in the news recently, it's not the primary regulator, interestingly.
The primary agency responsible for regulating cryptocurrency in the United States is the Financial Crimes Enforcement Network (FinCEN). FinCEN is a bureau of the U.S. Department of the Treasury that is tasked with detecting and preventing financial crimes, including money laundering and terrorist financing. In 2013, FinCEN issued guidance on the application of its regulations to individuals and entities that engage in transactions involving virtual currencies. This guidance requires businesses that deal in cryptocurrency to register with FinCEN, implement anti-money laundering (AML) and Know Your Customer (KYC) policies, and report suspicious activity.
Again, the SEC also plays a significant role in regulating cryptocurrency in the United States. The SEC is responsible for protecting investors, maintaining fair and orderly markets, and facilitating capital formation. In 2017, the SEC issued a report that concluded that some cryptocurrencies, such as Bitcoin, are securities and are therefore subject to its jurisdiction. This means that companies that issue cryptocurrencies may be required to register with the SEC and comply with its disclosure requirements.
The Commodity Futures Trading Commission (CFTC) is another agency that regulates cryptocurrency in the United States. The CFTC is an independent agency that regulates the futures and options markets. In 2015, the CFTC declared that Bitcoin and other virtual currencies are commodities, which means that they fall under its jurisdiction. Note this is conflict currently with the position of Gensler that BTC is not a security. The IRS is in a similar camp, so far. That conflict hasn't stopped CFTC from taking enforcement action against several companies that have engaged in fraudulent practices in the cryptocurrency market.
In addition to these agencies, the Internal Revenue Service (IRS) also plays a role in regulating cryptocurrency in the United States. The IRS treats virtual currencies as property for tax purposes, which means that gains or losses from their sale or exchange are subject to capital gains tax. In 2019, the IRS issued guidance on the tax treatment of cryptocurrency transactions, which clarified several issues, including how to calculate the basis of virtual currencies, how to report gains and losses, and how to handle forks and airdrops. This is probably the clearest guidance on record so far about the treatment of crypto, NFTs and similar, believe it or not.
The regulation of cryptocurrency in the United States continues to evolve, and there are ongoing debates about how to balance innovation and investor protection, even internal civil wars on the matter in agencies currently. Some argue that excessive regulation could stifle innovation and discourage investment, while others argue that without adequate regulation, investors and consumers are vulnerable to fraud and other forms of financial crime. Nevertheless, the involvement of multiple agencies in regulating cryptocurrency reflects the complexity and importance of this emerging asset class. It also adds to significant confusion and flight from U.S. markets at a time when the country needs growing, new markets for job growth.
