The regulatory framework in the United States (“US”) related to the sale and issuance of cryptocurrencies is a mess. Today, there is no single regulatory body in the US that governs the purchase and sale of cryptocurrencies. The Securities and Exchange Commission (“SEC”) is relying upon a Supreme Court case from 1946 to say that the issuance and sale of some cryptocurrencies could be securities subject to their regulation. The Commodities Futures Trading Commission (“CFTC”) calls cryptocurrencies “commodities” similar to corn and wheat and therefore subject to their regulation. The Financial Crimes Enforcement Network (“FINCEN”) wants to regulate anyone who is in the business of transferring money, including cryptocurrencies, as a money transmitter, and therefore subject to their regulations. The Internal Revenue Service (“IRS”) wants you to pay tax if you are mining digital coins the moment you get one and to also pay tax when you buy and sell them just like any other piece of property. Every state is also in the game and wants to require registration of money transmitters pursuant to state regulations. If you search the dark web of the Internet, many people will try to tell you that cryptocurrencies are unregulated. The regulatory conundrum that the US faces, along with every other country, is that cryptocurrencies are poised to disrupt the way the world trades goods and services by supplementing or replacing government currencies throughout the world. With that threat in mind, it’s no wonder that governments, including the US, are struggling with the proper regulatory framework for the biggest invention on the Internet since the Internet was created. So what is the answer to this regulatory conundrum? Let’s start with some simple suggestions. First, the states should step aside and let the federal government regulate something that clearly impacts worldwide commerce. States are causing enough trouble in the sales tax and income tax arena, which should be preempted as well, but that is another story. Second, the SEC needs to either update their regulations with some support from Congress or turn it over to someone else. Relying upon a 1946 Supreme Court case is not exactly cutting edge legislation and trying to apply it to the issuance of cryptocurrencies is difficult to say the least, and perhaps the greatest stretch of their regulatory authority. Let’s assume they are correct and that cryptocurrencies are securities and that they should be registered with the SEC as part of a public offering. Please tell me how that works so that I can start taking cryptocurrency companies public. Third, let’s be honest, cryptocurrencies don’t taste like corn or wheat to me, but let’s hand it to the CFTC for being smart about jumping into the game early. They clearly see the upside of being the lead regulatory agency in the space. They also know how much money is at stake and they want to be a part of it. The problem with their current power and authority, however, is that they have little authority over spot trading of cryptocurrencies. Of all of the regulatory agencies, FINCEN probably has the most to worry about. After all, cryptocurrencies give drug dealers and terrorists the ability to move money anonymously throughout the world. While the US struggles to find a solution, the rest of the world is issuing more and more cryptocurrencies with little or no regulatory oversight. If the US does nothing, they may wake up one day and find that there are several new international currencies that are so big and so generally accepted that there is little or nothing they can do to stop it. On the other hand, the US and other countries have not done a great job of managing their currencies so creating new regulations to govern cryptocurrencies is not necessarily a good thing either, and enforcing them globally is another problem. Hence the Regulatory Conundrum.
