2018 February 12 - Volume.2 Issue.6

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2018 February 12 - Volume.2 Issue.6

Goto Full Issue

US Regulatory Agencies Look to Concert Efforts on Cryptocurrencies

The US Securities and Exchange Commission (SEC) and US Commodity Futures Trading Commission (CFTC) Chairs, Jay Clayton and Christopher Giancarlo, testified infront of the US Senate last Tuesday in a session that looked to address concerns about virtual currencies. While the SEC and CFTC promised to protect US investors from fraudulent Initial Coin Offerings (ICOs), it was the shared view amongst the two regulators that they currently lack sufficient legislative powers, and that a broader coordinated effort with other agencies such as the Financial Crimes Enforcement Network (FinCEN) would be required. But will it be enough with the global outreach of cryptocurrencies, and the fairly self-side-lined regulators around the world?  


CFTC Chair Christopher Giancarlo was heralded by many as a new hero after the Bitcoin and cryptocurrency community tuned in to listen to the Senate hearing on virtual currencies last week. Mr Giancarlo who was seemingly upbeat about the prospect said “The 20-year “do-no-harm” regulation on the internet brought huge investments in internet companies and infrastructure. It brought mass adaptation, innovative technologies and revolutionized almost every aspect of life. I believe that we should also apply this “do no harm” regulation to distributed ledger technology”. Mr Giancarlo pointed out that regulating a market like Bitcoin and cryptocurrencies is a challenge that "requires new thinking" due to its international nature.

And his SEC counterpart Mr Clayton didn’t take a hard-line either against cryptocurrencies but stated that “semantic gymnastics” on whether or not a cryptocurrency is a security will not be tolerated by his agency. And most of the cryptocurrencies he has seen, are indeed securities.

But the global nature of cryptocurrencies and ICOs that have raised over $5Bn since 2017 (see graph) make a single country, let alone a single regulator as the sole authority almost impossible. Some countries have harnessed the new economic paradigm, such as Switzerland, whilst others, like South Korea, have banned ICOs all-together.

ICOs Raise Over $7Bn Since 2017 ($)


Source: TokenData.io, Diar


An idea did emerge last month at the World Economic in Davos when French President Emmanuel Macron said “I am in favor of the IMF having the mandate to monitor the entire international financial system, of which some areas escape regulation, like bitcoin, cryptocurrencies or shadow banking, which can trigger crises.” But the IMF hasn’t said that it wants the role of the policeman as of yet.

And while the SEC has amped up its rhetoric and actions against possible fraudulent ICOs, so have other regulatory agencies – each with a different opinion on which law was in fact broken (see table below).

There was a consensus between the two regulators that they may actually require more legislative power. However, with the lack of coordination between regulatory authorities, it’s difficult to assess who would indeed have authority and oversight over the digital currencies and assets market (see table 2 below). And that’s not necessarily the mistake of the authorities as cryptocurrencies can fall in all of the various classifications – currency, property, asset or commodity. What next steps will be taken remain unclear.

US Regulators Actions on Bitcoin & Cryptocurrencies

Regulator Date Action/Guidelines/Statements
FinCEN 18/03/2013 Released guidance saying that “convertible” virtual currencies are within its jurisdiction - even for non-US entities that provide services to US persons. Token issuers and exchanges that deal with convertible virtual currency must register with FinCEN as a money transmitter and they are subject to FinCEN’s regulations.
FinCEN 05/05/2015 Ripple Labs, who are the creators of the cryptocurrency XRP are charged with "wilful violation" of the Bank Secrecy Act and failure to adhere to AML Law. The company was fined $700,000.
FinCEN 27/07/2017 Fined BTC-e $110Mn for facilitating transactions involving ransomware, computer hacking, identity theft, tax refund fraud schemes, public corruption, and drug trafficking
IRS 29/11/2017 Coinbase ordered to report 14,355 users to the IRS
SEC 23/07/2013 Issued an alert warning investors to be on the lookout for Ponzi schemes involving virtual currencies
SEC 07/05/2014 Issued an alert to investors warning about the risks of trading virtual currencies
SEC 04/10/2015 Ceased a $32Mn cryptocurrency investment scam (US Fine Investment Arts)
SEC 25/07/2017 Some tokens may be securities and are thus subject to the federal securities laws
SEC 29/08/2017 Issued a warning about public companies making ICO claims and suspended trading of four companies
SEC 26/09/2017 Announces creation of a Cyber Unit targeting cyber-related misconduct including ICOs
SEC 29/09/2017 Charges ICOs REcoin and DRC with defrauding investors
SEC 01/11/2017 Celebrity endoresments of ICOs might be unlawful without the proper disclosure
SEC 04/12/2017 Emergency asset freeze to halt fraudulent ICO PlexCoin as Cyber Unit takes its first action
SEC 11/12/2017 Calling a token a “utility” token or structuring it to provide some utility does not prevent the token from being a security
SEC 30/01/2018 Attempting to conceal what we allege to be fraudulent securities offerings under the veneer of technological terms like ‘ICO’ or ‘cryptocurrency’ will not escape the Commission’s oversight or its efforts to protect investors.
CFTC 02/06/2016 Orders Bitfinex to pay $75,000 for failing to register as a futures commission merchant and for other trading violations
CFTC 01/12/2017 Allows Bitcoin futures trading on three exchanges
CFTC 24/01/2018 Sues three virtual currency operators for fraud

US Regulators Opposing Views on Cryptocurrency Class

Year Country Regulator Classification Remarks
2013 US FinCEN Currency An administrator or exchanger is an MSB under FinCEN’s regulations, specifically, a money transmitter.
2014 US IRS Property For federal tax purposes, virtual currency is treated as property. Under currently applicable law, virtual currency is not treated as currency.
2015 US CFTC Commodity Bitcoin and other virtual currencies are encompassed in the definition and properly defined as commodities.
2017 US SEC Security Virtual coins or tokens may be securities and subject to the federal securities laws.

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