Cryptocurrencies are not currently considered ‘legal tender’ in the United States. Moreover, regulation varies state by state, making it even harder to get to grips with what the US actually thinks of cryptocurrencies. Legislative consistency is, therefore, lacking. Laws governing exchanges, for example, can be entirely different – and depend on which state you reside, or operate, in. Federal authorities can even differ in their definition of what the term ‘cryptocurrency’ actually means!
For example, the Financial Crimes Enforcement Network does not consider cryptocurrencies to be legal tender, however since 2013 FinCEN has considered exchanges as ‘money transmitters’ (something which is subject to the local jurisdiction) – directly contradicting itself. Tokens are therefore loosely defined as having ‘other value that substitutes for currency’. In contrast to FinCEN, the IRS regards cryptocurrencies as property – and has therefore issued this tax guidance accordingly.
As one of the wealthiest and most legislated economies on the planet, legal operation of cryptocurrency exchanges in the US is of paramount importance to the consumer. The likes of Coinbase, Gemini, and others all have their head offices in the US and are therefore compelled to comply with financial laws. Uncertainty surrounding their legal obligations and relevant territories persists.
For example, several federal regulators potentially claim jurisdiction over the classification of cryptocurrencies. The Securities and Exchange Commission (SEC) has indicated that cryptocurrencies may be securities, stating that it was investigating applying existing securities laws to digital exchanges and wallets. The SEC regularly meets to discuss the evolving digital landscape, most recently looking at applications to approve a Bitcoin ETF. In stark contrast to the SECs position, the Commodities Futures Trading Commission (CFTC) has adopted a ‘softer’ approach, categorizing Bitcoin as a commodity – allowing cryptocurrency derivatives and products to trade publicly.
Future Regulation and Conclusion
As a result of the current legislative confusion, the Justice Department is coordinating with both the CFTC and SEC to shape future cryptocurrency regulations, ensuring effective consumer protection and consistent, clear regulatory oversight. The US Treasury has even urged the need for digital currency regulations to combat potential criminal operations around the world. As a result, there has been a stark increase of Know Your Customer (KYC) requirements from exchanges attempting to future-proof their own compliance. Treasury Secretary, Steve Mnuchin, announced a new FSOC working group in January, with the objective to explore the increasingly crowded and complex cryptocurrency and blockchain marketplace
Consumers are likely to see further dialogue between such organizations as the Gemini exchange, Coinbase, and regulators, in an effort to meaningfully shape supportive legal frameworks. All sides are likely to be waiting for a while yet before any major decisions are made.