A law professor has reached an unflattering conclusion regarding the regulatory climate of the crypto space in the United States — it’s confusing!
According to Carol Goforth, who teaches at the University of Arkansas School of Law, “overlapping regulations produced by a multitude of distinct agencies with different missions and priorities” has resulted in a “confusing mix of classifications and requirements” for cryptoassets.
To illustrate her point, Goforth noted that there are four federal agencies in the United States which regulate cryptoassets to a certain degree and form: the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN) and the Internal Revenue Service (IRS).
Lack of Harmony
Consequently, the various federal agencies have varying definitions of cryptoassets, and this sows complexity and confusion. In its regulatory role the SEC, for instance, treats the issuance of new digital assets as securities. The CFTC, on the other hand, views all cryptoassets as commodities while the IRS sees crypto as property. In contrast, FinCEN regulates cryptocurrency exchanges as “money” exchangers, effectively leading to the conclusion that the U.S. Department of the Treasury bureau views cryptoassets as currency.
Inevitably, the varying definitions by the different agencies results in overregulation since each entity has its own requirements which must be met. Trying to comply with the numerous regulatory obligations thus becomes expensive and time-consuming for the players in the sector.
The situation gets worse at the state level since every state in the union has its own set of securities laws and tax regimes. Currently, only a handful of states have determined that cryptoassets should be exempted from state securities laws.
Per Goforth, the way forward is to adopt a regulatory approach that is more nuanced in order to avoid overregulation.
Here’s the Proof…
Already, the existing regulatory regime in the world’s biggest economy seems has severely limited the number of coins that U.S.-based cryptocurrency exchanges such as Coinbase can offer their clients. In contrast, a cryptocurrency exchange such as Binance which is headquartered in a friendlier jurisdiction boasts of dozens and dozens of supported coins.
The U.S. regulatory regime has also had an impact on ICO issuance. As reported by CCN earlier this year, a significant number of projects have skipped the U.S. and instead chosen to issue their initial coin offerings in jurisdictions such as Singapore, the Virgin Islands, and the Cayman Islands.
This was according to a report prepared by Satis Group Crypto Research which noted that in 2017 the U.S. had cornered 32% of the global ICO fundraising market. As of the first half of this year, this market share had declined to 10%.