The innovative nature of cryptocurrency has everyone from bankers and investors to large corporations focusing on possible use case applications.
However, another group – regulators – are also trying to figure out what to do with cryptocurrencies. Consequently, cryptocurrency users need to keep an eye out on future restrictions that might impact the crypto market.
By their very nature, cryptocurrencies are freewheeling, not beholden to country borders or specific agencies within a government. However, this nature presents a problem to policymakers who are used to dealing with clear-cut definitions for assets.
One major unresolved question involves who should regulate cryptocurrencies. This is a confusing issue, especially given the fact that regulatory agencies can’t even agree on what a cryptocurrency is and what it is not.
For example, the Commodity Futures Trading Commission (CFTC) treats Bitcoin as a commodity, while the Internal Revenue Service (IRS) treats it as property.
There is also a disparity in state and federal responses to cryptocurrency. Some states have done nothing while others have formulated rules for initial coin offerings (ICOSs) and smart contracts.
But the federal focus is essentially on interpreting existing laws compared to how the cryptocurrencies are being used.
Another burning question: How should cryptocurrencies be regulated? Some have called bitcoin a legal platypus that doesn’t fit neatly into established asset categories.
For example, there are broadly four different types of tokens being traded on exchanges—transactional, utility, security, and governance tokens. Such tokens are not subject to the SEC’s rules unless they are used as securities. On the other hand, security tokens represent equity or a share in a company and automatically fall under SEC purview.
To complicate matters, several tokens have circumvented existing regulations by declaring themselves utility tokens. Such startups have been resoundly criticized, but that has not stopped tokens with questionable business models from being listed on exchanges outside their native countries.
Want to learn more? Tonex offers Blockchain and Cryptocurrency Masterclass Training, a 2-day course where participants will delve deeply into blockchain and cryptocurrency technologies, two of the most important technological modalities driving global economics today and likely in the future.
For more information, questions, comments, contact us.