Cryptocurrency - So many coins!

Over the past decade, the cryptocurrency market has significantly grown in size and popularity worldwide. As demand for Bitcoin and other cryptocurrencies increases, each country has been making legal decisions about how to regulate them. These regulations continue to evolve.

It is likely impossible to stop cryptocurrency use completely since transactions can be done anonymously over the internet or even using paper wallets.

While some regulations might slow down the purchase and usage of cryptocurrencies, others could aid in the growth of this new asset class.

Countries can ban cryptocurrency exchanges and ICOs (initial coin offerings), making it illegal for businesses to accept cryptocurrencies. Even if it’s illegal for citizens to use cryptocurrencies, tracking users down can be challenging.

While some regulations might slow down the purchase and usage of cryptocurrencies, others could aid in the growth of this new asset class. Even an announcement about a cryptocurrency regulation can cause prices to rise or fall.

If you are already invested in cryptocurrencies or are interested in investing, you may want to learn about regulations and how they might affect you.


Note: This article is only a high-level overview of crypto regulations. And, as crypto is not currently regulated (discussed below), it is highly volatile to invest in and comes with significant risk.

Background on U.S. Crypto Regulations

Anytime a new technology is developed, the U.S. government decides how to regulate it. This process can take years. Blockchain technology is complex and can be applied to any industry, including manufacturing, food, and governance. Cryptocurrencies are just one part of the broader usage possibilities of this technology.

Lack of regulation in the U.S. has primarily prevented U.S. citizens from being able to participate in many ICOs, and has caused numerous blockchain and cryptocurrency companies to start up elsewhere and avoid working with the U.S.

Although the U.S. has been slow to release comprehensive laws and regulations about cryptocurrencies, the Securities and Exchange Commission (SEC) has recently increased its crackdown on specific activities, especially ICOs. In 2017, the SEC made five actions regarding digital tokens, which increased to 18 steps in 2018.

The case-by-case approach the U.S. has taken until recently fits with the broader legal structure and philosophy of the U.S. government.


The U.S. legal system is set up to respond to issues through the lens of a specific event and legal case.

Rather than releasing broad laws and regulations about topics, a regulatory landscape is typically created over time as issues arise. This differs from many other nations that make rules first and then act to enforce them as cases occur.

Current U.S. Regulations

The IRS views cryptocurrencies as assets or property, meaning capital gains taxes apply. They are not considered legal tender in any state, though the Missouri House of Representatives introduced a bill in March to change that within the state.

The SEC currently views some cryptocurrencies as securities. Its goal is to apply securities laws to the industry across the board. This would affect everything from exchanges to ICOs to wallet companies. In April, the SEC has released new guidance on cryptocurrencies, though those guidelines are not yet law.

Unlike the SEC, the Commodity Futures Trading Commission (CFTC) considers Ether, the second-most traded cryptocurrency, as a commodity. This stance, and the resulting regulations which would come with it, would be more crypto-positive than the SEC’s position because it would allow Ether to be traded on the U.S. markets.

Congress has introduced more than 20 bills this year related to cryptocurrency. And in 2018, two bills were introduced to make the U.S. a stronger player in the cryptocurrency industry. The Virtual Currency Consumer Protection Act of 2019  and the U.S. Virtual Currency Market and Regulatory Competitiveness Act of 2019  aim to move the regulation process forward so that the U.S. can benefit from the growing cryptocurrency industry.

Future Regulations

The U.S. has been taking its time in solidifying cryptocurrency regulations, but that doesn’t mean there haven’t been discussions. There have been numerous meetings and reports written about the industry.

Although the ultimate decisions around regulating cryptocurrencies may not look favorable for the industry, the fact that the government is gathering so much information is a good sign.

Cryptocurrency technology is complex, and many factors must be considered. Unfortunately, technology is changing very quickly, and the policies aren’t necessarily keeping up, which may result in regulations being passed that are already out of date with the current market.

Part of the delay is because there isn’t a particular regulating body to pass and enforce cryptocurrency regulations. The SEC and the CFTC can step in if an exchange does something illegal, but state-level laws apply to most money-transmitting operations. Congress could potentially form a new regulatory body for cryptocurrencies.

More clarification is still needed in several areas. Regarding whether cryptocurrencies are securities or commodities, some have felt that the project’s level of decentralization determines this.

If a project is decentralized and no central authority controls its development, it would not be classified as a security. A new bill introduced last year would confirm this. The problem is that projects can ramp up their operations before hearing from the SEC about whether they are a security and then end up getting shut down.

The way cryptocurrencies are currently taxed, an investor might see a huge tax bill. A token could increase significantly in one year but lose all its value the following year. Avoiding significant losses and taxes requires a more in-depth level of attention and knowledge than many investors have.

Global Cryptocurrency Regulations

There is currently no global regulation standard for Bitcoin and other cryptocurrencies. Regulations are handled individually by each nation.

In June 2019, the Financial Action Task Force (FATF) released regulations requiring virtual asset service providers, which includes cryptocurrency companies in more than 200 countries, to verify the identities of anyone sending more than $1,000 in a transaction.

They also need to send customer information back and forth to one another as banks do. Countries have 12 months to implement these rules.

Exchanges and ICOs previously had to comply with specific “know your customer” (KYC) rules, but these new regulations are stricter. Smaller businesses may suffer since they do not have the team and resources to implement this rule.

Although there has been pushback against these regulations, the goal is to protect consumers and prevent money laundering and the funding of terrorism.

G-20 is a group of central bank governors and finance ministers from the European Union and 19 nations with the world’s largest economies. The group includes representatives from the U.S., Japan, France, Germany, the U.K., and other powerful countries. Formed in 1999, the G-20 is the leading global council for economic issues.

The group aims to regulate financial markets and promote global trade and economic growth. The group has no legal power, but its agreements have a powerful impact on the economy since they influence the financial decisions of the world’s most significant economic authorities.

The members of the G-20 have been discussing cryptocurrencies in their recent meetings, and they agreed to comply with the regulations released by FATF. The Financial Stability Board, a global financial regulation board, gave the G-20 an assessment claiming that cryptocurrencies did not pose a financial threat and recommended against attempts to ban them.

The International Monetary Fund, or IMF, is concerned about the use of cryptocurrencies for terrorism, fraud, and money laundering. They are considering the possible benefits of financial policies to protect consumers and nations against these uses.

Crypto Regulations in Other Countries

Each country has its stance on cryptocurrencies. Little by little, each country is issuing regulations that are generally favorable to the growth of the industry. Some countries, such as Norway, Canada, and the Bahamas, are considering giving cryptocurrencies.

In 2018, Malta became the first country to release a comprehensive framework for the use of cryptocurrencies. The nation now requires businesses to acquire certifications, conduct specific processes to run ICOs, and more.

The framework clarifies that Malta wants to support the industry and does not find cryptocurrencies illegal. Malta’s regulations may set a precedent for other countries to create similar frameworks. Switzerland is on track to release a complete cryptocurrency framework.

Recently, Japan approved a new bill that tightens crypto regulations to protect consumers and prevent hacks. The bill also officially names cryptocurrencies as “crypto assets.”

Australia also released regulations stating that all cryptocurrency companies, including ICOs, exchanges, and mining operations, must comply with Australian laws and rules associated with financial institutions. In some cases, this requires obtaining a license or authorization.

Hong Kong hopes to become a hub for cryptocurrency trading, so it recently unveiled new rules to position itself as such.

Others, however, don’t have such a positive view of cryptocurrencies and don’t show signs of loosening their stance. China has attempted to crack down on cryptocurrencies by banning exchanges and ICOs.

When Ecuador attempted to launch its cryptocurrency, it banned others from eliminating competition.

As of Oct. 2019, there are 124 countries where using Bitcoin is unrestricted and eight illegal. However, these rules are not always enforced, and it isn’t easy to do so. Bangladesh is the only country that has been known to enforce its ban.

Is More Regulation Positive or Negative for Cryptocurrency Users?

Although an outright ban on cryptocurrencies would make it difficult to continue using them, other regulations can help grow the industry and protect consumers.

Many exchanges and ICOs have become scams and have been vulnerable to hackers. Regulations may not have prevented all those financial losses, but they could have helped with some. Business requirements such as insurance, cybersecurity, and audits can all be positive for the industry.

Some consumers have not invested in cryptocurrencies because of the fear of hackers and the stigma around them, so regulations may encourage them to get involved.

More regulations may also allow more significant funds and established financial players to get involved. However, more restrictions may cause certain cryptocurrency users to move away from exchanges and toward peer-to-peer transactions to keep their privacy characteristics intact.

Everyone may agree that we don’t want cryptocurrencies to be used to fund terrorist attacks or underground criminal networks; however, the process to prevent that from happening is not simple. Privacy is one of the overarching principles of cryptocurrencies and is nearly impossible to regulate. Governments want to be able to track cryptocurrency transactions to prevent crime, but also so that they can collect taxes.

Policymakers can require that exchanges take users’ information, but you don’t have to go through an exchange to use cryptocurrencies.

Cryptocurrencies like Bitcoin don’t have a central authority or founder, so no business or team can be regulated or shut down. Certain privacy coins may be at risk if regulators attempt to require identification for all transactions.

Unfortunately for U.S. investors, the lack of legal clarity has caused many well-organized exchanges and businesses to base themselves on other nations and exclude U.S. participation. U.S. customers have been unable to invest in certain ICOs for this reason.

The U.S. only allows accredited investors to participate in investments in certain circumstances. Requiring this for all ICOs would severely dampen the industry’s growth and block many citizens from participating. With a well-thought-out balance of regulations, the industry can continue to grow, and U.S. citizens can benefit.

How Do Regulations Affect You as an Investor?

It’s essential to pay attention to the tax regulations, which require you to keep track of your transactions to pay the appropriate capital gains tax.

As a U.S. investor, you can buy, sell, and send cryptocurrencies on numerous exchanges and investment apps. Some exchanges limit the amount of money you can deposit or withdraw, and some require more extensive identity verification.

Once you know how much money you want to invest into cryptocurrencies, which coins you are interested in buying, and how often you plan to buy, sell, or withdraw them, you can decide the best platform for your portfolio. It’s essential to pay attention to the tax regulations, which require you to keep track of your transactions to pay the appropriate capital gains tax.

If you want to invest in ICOs, each project will have different rules surrounding your participation. Some ICOs ban U.S. citizens altogether, and some require you to be an accredited investor.


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