Though over a decade old and having evolved from fringe hobbies to a multibillion dollar asset class, cryptocurrencies have thus largely evaded the attention of regulators. Though in the US, the IRS and SEC have proactively hunted down taxpayers who neglect to report cryptocurrency trades, as well as businesses who skip the registering of tokens as securities, they have largely failed to outline and update guidance on the value of specific crypto transactions and which initial coin offerings qualify as security offerings. The recently-introduced Cryptocurrency Act of 2020 aims to elucidate consumers by categorizing cryptocurrencies as well as delegating regulation and enforcement to specific agencies.
An example of governing in the time of coronavirus, Arizona congressman Rep. Paul Gosar introduced the Cryptocurrency Act of 2020 while under quarantine, though he initially brought it forth in December 2019, following a joint statement from the SEC, FinCEN, and the CFTC that those engaging with digital assets must actually observe laws. A specific point was adherence to anti-money laundering and counter-terrorism financing obligations as defined in the Bank Secrecy Act (BSA). Therefore, all institutions using cryptocurrency are obliged to report suspicious activity and maintain record-keeping practices. This fell short though of outlining who it falls upon to regulate and enforce these requests.
In order to designate enforcement and regulation, the Cryptocurrency Act of 2020 has divided cryptocurrencies into three designations. Crypto Currencies are defined as any currencies or synthetic derivatives within a blockchain or a cryptographic ledger, such as Bitcoin, Litecoin, or even stable coins. Crypto Commodities, on the other hand, are exemplified by Bitcoin futures contracts, and are economic goods or services treated by markets in regard to their producer, resting in a blockchain or decentralized ledger. Finally, Crypto Securities are initial coin offerings, or debt, equity, or derivative instruments resting on a blockchain or decentralized ledger. It is vital to note that the Cryptocurrency Act of 2020 is still a bill and therefore does not hold the force of law; however, if it passes, the following agencies will regulate these three categories. Normally tasked with regulating banking and money service institutions, FinCEN, the Financial Crimes Enforcement Network, would regulate what are defined as Crypto Cureencies. The SEC, or Securities Exchange Commission, would regulate Crypto Securities, since it typically watches over the securities markets. Lastly, the CFTC, or Commodity Futures Trading Commission, the usual watchdog of commodities and futures markets, would regulate Crypto Commodities as well. In addition, the Federal Digital Asset Regulator would be responsible for maintenance of all licenses, certifications, and/or registrations employed in creating, issuing, or trading digital assets. FinCEN, working with the Security of the Treasury, would develop sets of comparable rules for tracing crypto transactions by traditional financial institutions.
Many aspects of the Cryptocurrency Act of 2020 read as anathema to those attracted to cryptocurrency in the first place, in that it will be regulated and watched over by centralized authorities and traditional banking institutions. Its very existence though is also a testament to the prevalence and staying power of cryptocurrency.