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Regulators have increased their activities in the crypto industry since the booming cryptocurrency bull run in 2017. U.S. regulatory agencies, such as the Securities and Exchange Commission (SEC), the Department of Justice (DoJ), and the Commodity Futures Trading Commission (CFTC), have all conducted various forms of enforcement efforts.
Since December 2020, further regulatory initiatives have been introduced, including a proposal from the Financial Crimes Enforcement Network (FinCEN) to strengthen the regulation of crypto wallets. What do participants in the crypto industry think of the current regulation?
In fact, as institutional involvement increases, “regulatory notifications from entities like the SEC, OCC, IRS, and FinCEN have become more regular,” Horizon Labs co-founder Dean Steinbeck told Cointelegraph. He added: “In recent months, we continue to see more and more institutional adoption of Bitcoin or cryptocurrency, slowly but surely closing the education gap between traditional finance and decentralized finance.”
Regulatory landscape remains unclear
During 2020, many large mainstream entities and individuals, including MicroStrategy, MassMutual, Square, and Paul Tudor Jones, announced their large investments in Bitcoin. 2019 and 2020 have seen increased activity by U.S. regulators in the crypto space in terms of enforcement and transparency.
“However, these notices and regulations are often complex and unclear, which in turn makes them meaningless and misleading in the eyes of the crypto community,” Steinbeck said, adding:
“What’s standing in the way of transparent, fair regulation being put in place? The people drafting these regulations don’t work with crypto on a daily basis. If we can change the system by which these notifications, rules, and policy are developed, the crypto community might be more receptive to the proposed regulations that are being put in place.”
Over the past two years or so, a flurry of regulatory action has been introduced. The Office of the Comptroller of the Currency (OCC) approved national banks to conduct cryptocurrency custody. The Internal Revenue Service (IRS) has attempted to provide transparency on the crypto tax system, though the agency’s efforts have added confusion to the process. The IRS has also added a question about digital asset holdings to its tax forms.
Recently, the CFTC and DoJ cracked down on crypto derivatives exchange BitMEX, the SEC filed a lawsuit against Ripple claiming that its XRP asset is a security, and FinCEN proposed a rule to monitor the movement of funds to self-hosted crypto wallets and between platforms.
“We’ve come a long way as an industry, but we’ve also just gotten started,” Blockdaemon founder and CEO Konstantin Richter told Cointelegraph when asked for his thoughts on the current crypto regulatory landscape, adding: “Over the past year, it seems like crypto regulators have stepped up their game and are asking better questions rather than the easy ones.”
Richter noted that there is an opportunity to guide regulatory agencies to learn more about the industry. He added:
“I think the best way we can work together to encourage and inform regulators is to partner with the crypto industry on innovation and to develop the protections and standards needed for more institutional and mainstream adoption to continue.”
On the more educated side of government, Gary Gensler, the SEC chairman appointed by U.S. President Joe Biden, may bring his extensive crypto knowledge to the job. Gensler teaches a course on cryptocurrency and blockchain at the MIT Sloan School of Management. Recent reporting by Cointelegraph revealed Gensler’s extensive industry knowledge.
Digital asset regulation is not a strange concept
“Crypto regulation has always been an important topic, and in the past, news or even just rumors have triggered huge price swings,” Philip Salter, head of mining operations at Genesis Mining, told Cointelegraph.
As cryptocurrencies grow as an asset class, the regulation surrounding them has also increased. Part of the crypto industry's move out of the regulatory gray area may include government agencies listening to the industry. For example, crypto industry participants recently made a lot of comments on FinCEN's proposed regulation of crypto wallets.
“We’ve seen a much more open and in-depth discussion about cryptocurrency regulation recently,” Salter said. “A big new topic seems to be whether KYC is required for individual wallets and token holdings,” he explained, adding:
“If the U.S. implemented crypto wallet rules, it would have a significant impact and could cause some panic. I think, in general, it’s better not to worry too much about rumors and regulations in the short term, and instead, it’s better to take a step back and acknowledge that it will take years to determine final crypto regulations. We are talking about a financial revolution, and there will definitely be struggles.”
Erik Finman, an early cryptocurrency buyer who became a millionaire through Bitcoin investing, believes that regulation is a long-standing and important issue. Finman told Cointelegraph: "Regulation has always been the biggest challenge for cryptocurrencies, and I think with some of the political unrest that has been going on, there has been some pause in crypto regulation," he added:
“Under the new administration, cryptocurrency advocates will need to do their best to work with the government to create a win-win situation.”
As the United States continues to consolidate its government roles following the presidential transition on January 20, 2021, the atmosphere surrounding crypto regulation remains to be seen. As SEC Chairman, Gensler will bring a wealth of crypto knowledge to the Commission, which could pave the way for educated regulation.
However, recent comments from Janet Yellen, President Biden’s nominee for Treasury Secretary, indicate she is concerned about the role of cryptocurrencies in criminal transactions. Meanwhile, the crypto industry is awaiting new developments on FinCEN’s wallet regulation proposal, which recently extended the comment period. (Cointelegraph) |
