The United States of Confusion: How America Chose Not to Take Action with Crypto Regulation in 2018
If the Bitcoin bubble of 2017 taught us anything, it’s that cryptocurrency has the potential to become a household name overnight. No longer the realm of anarcho-capitalists, crypto assets like Bitcoin, Ethereum, and others stepped into the spotlight thanks to Bitcoin’s rising tide lifting all boats — only to have that valuation sink like a stone going into 2018.
The sudden influx of interest in cryptocurrency in 2017 certainly motivated world governments to act in 2018, with a number rolling out regulations to cope with the sudden frenzy. Yet in the United States, confusion seemed to reign when it came to making a move. In fact, the consensus among financial experts is that for the most part US regulators have chosen not to act on new regulations on the use of cryptocurrency on a federal level.
Muddying The Waters
Finance experts agree that the waters are still cloudy when it comes to cryptocurrency regulation. The problem, it seems, is that federal watchdog agencies are simply not on the same page. Investment regulatory bodies like the SEC and the CFTC have all gone on record in an attempt to have crypto assets dealt with like securities, and even the Consumer Financial Protection Bureau has added its two cents in order to protect the interests of uninformed investors, but there’s simply no consistency in how these protections and regulations have been applied.
Part of the issue is how the SEC is approaching the initial coin offering. ICOs proliferated in 2017 — and continued to do so throughout 2018 — and the SEC has spilled much ink trying to regulate these ICOs. The problem, according to many experts, is that the agency is trying to apply a digital token offer to a more traditional standard, despite the clear differences in these two types of offer. The result, therefore, has been little in the way of solid regulatory changes, even as the SEC has been sounding the alarm nearly constantly when it comes to how it wants to treat ICO assets as securities.
Not-So Secure Securities Investments
That’s not to say that there haven’t been public enforcement actions against high-profile cryptocurrency enthusiasts. Celebrities like DJ Khaled and Floyd Mayweather, and crackdowns on ICOs like Paragon and AirFox, clearly demonstrate that the SEC is deadly serious on treating ICOs like securities. In the case of the celebrity endorsements, fines in the hundreds of thousands of dollars have been levied against both Mayweather and Khaled for not disclosing that they were receiving payment for promoting ICOs on social media.
This is, of course, not surprising in the least. The SEC has been signaling for quite some time that, as far as the regulatory body is concerned, you still need to abide by the existing rules and regulations of the US capital market, even in the event that you’re purchasing digital assets like cryptographic tokens. Meanwhile, the SEC is not willing to bend on any companies that fail to register their tokens with the agency; both AirFox and Paragon ended up in some very hot water for not adding their tokens to the SEC’s securities list.
No Move On Bitcoin ETFs Is A Move Of Its Own
The SEC hasn’t limited itself to ICOs when it comes to cryptocurrency regulation. In fact, it’s been making moves on Bitcoin exchange-traded funds (ETFs) by specifically not making a move — the agency has refused to make any decisions regarding Bitcoin ETFs for quite some time, with the resultant uncertainty and speculation wreaking havoc on the price of the cryptocurrency in a seemingly never-ending cycle.
A telling example of this is how BTC rose in valuation to just short of $10,000, a price it hadn’t seen in a number of months, based upon speculation that the SEC would accept the ETF application the Winklevoss twins made to the agency. Yet the two billionaire brothers — creators of the aptly-named Gemini cryptocurrency exchange — had their hopes dashed after yet another high-profile rejection, driving prices down once again.
Stabilizing Bitcoin Volatility
It’s an open secret that the SEC views the Bitcoin market as too volatile for it to rubber stamp an ETF approval despite a number of crypto exchange companies averring otherwise. The resultant price changes in the wake of its delays and rejections seem to drive its point home — part of why its neglect in making a move is, in fact, a definitive move in and of itself — but the truth is that many financial experts agree that a Bitcoin ETF would result in the valuation for the cryptocurrency to not just even out but to rise.
Still, the SEC has said that it is taking into account public opinion when it comes to its ultimate decision. Proof of this is how it extended public comments on its ETF decision through the entirety of October of 2018. How much weight these comments will have is ultimately unclear, but it does provide avenues for both proponents and detractors of a Bitcoin ETF for a chance to be heard.
Some Signs Of Positive Life
Despite the black morass that has been the SEC’s unwillingness to make a decision on Bitcoin ETFs and its continued attempts to regulate ICOs as securities, there are some signs of positive life in the US regulatory landscape. A number of moves on the state level have opened the doors for more acceptance of cryptocurrency, such as in the case of Wyoming making a number of decisions for businesses working with crypto within the state. Additional developments, such as Ohio beginning to take tax payments in cryptocurrency, has also been a silver lining in 2018.
Federally, tax collection and cryptocurrency is intersecting, with the Internal Revenue Service increasing its blockchain analysis budget to more than $2 million. The focus on the part of the IRS is, of course, to ferret out any tax avoidance or criminal activity, chiefly by identifying coin holders, with the US Secretary of the Treasury, Steve Mnuchin, sitting down with IRS Commissioner Charles Rettig to discuss ways to make this happen. This will, over time, drive bad actors out of the cryptosphere, thus legitimizing it for individuals and businesses alike.
The Big Picture
The lack of any movement on the part of the United States in taking definitive stances on cryptocurrency regulation has had an impact on global crypto markets, of course. There has been a noticeable decline in some market segments related to token offerings; Ethereum in particular has taken a substantial hit, especially as its ERC-20 token capabilities made it such an attractive platform for token-based ICOs. The lack of any movement on the part of the US government has also resulted in cryptocurrency adoption rates to slow, especially with the SEC continuing its insistence on treating ICOs as securities and its failure to reach a conclusion on Bitcoin ETFs.
The biggest issue, though, is likely the fact that federal regulators are not of one mind when it comes to approaching cryptocurrency regulation in the United States. Until this happens — until a more comprehensive framework has been developed that spans all relevant regulatory agencies and takes into account current and prospective stakeholders — there’s little chance of this happening any time soon. Still, there are movements slowly emerging out of the cryptosphere in the form of self-regulatory organizations and political action campaigns to begin the much-needed process of continuing to make cryptocurrency a household name in 2018 and beyond.